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

Industry''s long-run supply schedule, A perfectly competitive painted neckt...

A perfectly competitive painted necktie industry has a large number of potential entrants. Each firm has an identical cost structure such that long-run average cost is minimized at

Company is researching the effectiveness, A company is researching the effe...

A company is researching the effectiveness of a new web site design to decrease the time to access a website. Five web site users were randomly selected and their times (in seconds

Distinguish between static and dynamic gains from trade, Question 1: Cr...

Question 1: Critically analyse the costs of inflation. Which of these items is likely to have encouraged many governments in their adoption of inflation as public enemy number

Index number, definition and charactoristics of index numbers.problems whil...

definition and charactoristics of index numbers.problems while constructing index numbers

Price of dvd players decreases, If the price of DVD players decreases, we c...

If the price of DVD players decreases, we can expect that the demand for DVDs will: a. increase. b. be unaffected. c. shift left. d. Decrease

Serve on an environmental policy, Suppose you serve on an environmental pol...

Suppose you serve on an environmental policy planning board for the federal government. Your task is to propose a policy initiative aimed at reducing urban air pollution, using the

Stock trading company, An online stock trading company makes part of their ...

An online stock trading company makes part of their revenue from clients when the clients trade stocks therefore, it is important to the company to have an good idea of how many tr

Analyse the effects of oil price, As previously stated, the aim of the pape...

As previously stated, the aim of the paper is to observe and analyse the effects of oil price shocks on key macroeconomic indicators in the UK economy. From this the aim is to conc

Pigou effect, The Pigou effect: A) suggests that as prices fall and real...

The Pigou effect: A) suggests that as prices fall and real money balances rise, consumers should feel less wealthy and spend less. B) suggests that as prices fall and real mo

Peers for a country, What are the best criteria to select peers for a count...

What are the best criteria to select peers for a country ?

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