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

Exchange rate, what are the types of exchange rate

what are the types of exchange rate

Money demand, What will happen to the shape of the money demand curve if th...

What will happen to the shape of the money demand curve if the checking accounts bear interest? will it still slope down if the interest of the checking account is fixed while the

Net profit advertisement relationship, In 2009, ABC Company made $2M of net...

In 2009, ABC Company made $2M of net profit and spent $100,000 on advertisement. In 2010, it made $2.5M of net profit and spent $150,000 of advertisement. Based on this information

What is money and what is not money, What is money and what is not money ...

What is money and what is not money If you are trying to conclude if something is money, simply consider whether it would be accepted in most stores as payment. You then realiz

calculate the annual cost and present value, National Marine Fisheries Ser...

National Marine Fisheries Service is considering closing a large area of federal waters to fishing in Alaska due to negative interactions of fishing with endangered Steller sea lio

Determine why banks raise their interest rates, Determine Why banks raise t...

Determine Why banks raise their interest rates A way to explain why banks raise their interest rates is as follows. With higher overnight interest rates, it is more expensive fo

Lewis model, what is the relevance of the lewis model

what is the relevance of the lewis model

What is gdp, Assuming an economy with no government and no foreign trade. M...

Assuming an economy with no government and no foreign trade. Measure GDP for the following output scenario: There are three firms: firm A is a minning company, firm B is a stee

Help .., I need help with Creating a table showing the CAGR of GDP by decad...

I need help with Creating a table showing the CAGR of GDP by decade and over the entire period of time

State the both overnight target rates and inflation, Overnight target rates...

Overnight target rates and inflation One of the main targets of every central bank is a low and stable inflation. It's main control variable is the overnight interest rate targ

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