Augmented phillips curve, Macroeconomics

Assignment Help:

Q. Augmented Phillips curve?

Remember that Phillips curve, as it was incorporated into the Keynesian model, presumed a stable relationship between wage inflation andunemployment: for a given level of unemployment (say U = 5%), a given level of wage inflation would apply (say Πw = 4%). As U increased, Πw would fall and vice versa.

Mathematically, Phillips curve may be explained by a decreasing function f as Πw = f(U). In neo-classical synthesis, expected inflation is added and Πw = f(U) + Πe. To justify this amendment, imagine U = 5% and Πw = 4% (so that we are on Phillips curve) and expected inflation rises from 4% to 6%. As employees care about real wages, it's reasonable to presume that Πw will increases as well (for a given U) and Phillips curve will shift upwards. 

1649_Augmented Phillips curve.png

Figure: The augmented Phillips curve

According to synthesis, Phillips curve should be drawn for a given value of Πe and it should be shifted upwards (downwards) as Πe increases (decreases). When position of Phillips curve is allowed to depend on Πe, is known as augmented Phillips curve (or expectations-augmented Phillips curve). This amendment to Phillips curve is actually a consequence of a criticism of conventional Phillips curve and Keynesian model from the late 1960's (Keynesian - Monetarism debate).


Related Discussions:- Augmented phillips curve

Marginal cost of care, Given the following MV information, what is the opti...

Given the following MV information, what is the optimal allocation of care according to the Preteens criteria, when the marginal cost of care is constant at $100. Person A Person B

Traditional business cycle, casual factors of traditional business cycle an...

casual factors of traditional business cycle and its effects on the sectors of the economy

Price equal marginal cost, Does a firm's price equal marginal cost in the s...

Does a firm's price equal marginal cost in the short run, in the long run, or both? Explain.

Short-run framework, What is the difference between the short-run framework...

What is the difference between the short-run framework and the long-run framework? Discuss how each relates to supply and demand.

Medical goods or services, For which of the following medical goods or serv...

For which of the following medical goods or services is the income elasticity of demand largest? a. emergency services after a car accident b. measles shots c. physical ex

Find out the expected return on capital, Butthole Industries is buying out ...

Butthole Industries is buying out Avengers, Inc.  Butthole and Avengers both have market capitalizations equal to their fair value or the present value of their net cash flows.  Bu

Exogenous variable change, Market questions come in two types: Type 1: y...

Market questions come in two types: Type 1: you are given the exogenous variable change and you must shift the correct curve in the right direction and then determine the new pr

COMPLETE KEYNESTION MODEL, WHAT IS THE SHAPE OF AGGREGATE SUPPLY CURVE IN C...

WHAT IS THE SHAPE OF AGGREGATE SUPPLY CURVE IN COMPLETE KEYNESIAN MODEL

Decrease at the rate of subsequent withdrawals, How much do you have to dep...

How much do you have to deposit today in order to allow 5 annual withdrawals, beginning at the end of year 8, with the first withdrawal of $1000 with subsequent withdrawals decreas

Explain about monetary base, Q. Explain about Monetary base? Monetary b...

Q. Explain about Monetary base? Monetary base is defined as the total value of all currency (coins andbanknotes) outside the central bank and commercial banks' (net) reserves w

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd