Phillips Curve Cont.

SRAS→=SRPC←

(imagine the direction of the arrows on the corresponding graphs below)

• inflationary expectations ↓, input prices ↓, productivity ↑, business taxes ↓, +/or deregulation
• SRAS→: GDPR↑ and PL ↓; u%↓ and π%↓
• SRPC← (disinflation)

 *supply shock→rapid and significant increase in resource cost which causes the SRAS to shift

*NRU→is = to frictional, structural, and seasonal (cyclical based on economy)

• natural rates and fewer worker benefits create a lower NRU (free med. care for all workers, lay-off some b/c profits being eaten)

*misery index→combo. of inflation (2-3%) and unemployment (double digits=depression, forget a recession) in any given year. Single digit misery is good. 

*if inflation rate persists and expected rate of unemployment rises, then entire SRPC moves upward. When that happens, stagflation exists. 

*if inflation expectations drop (due to new tech., efficiency, etc.), the SRPC moves downward

*stagflation→↑ unemployment and ↑inflation occurring at same time

*disinflation→when inflation decreases over time 

• nominal wages ↓ (good)
• business profits fall as prices ↑ (bad)
• firms reduce employment, thus, unemployment ↑