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

What are the two main costs of economic growth, What are the two main costs...

What are the two main costs of economic growth The two main costs of economic growth are resource depletion and environmental damage. Economic activity needs factor inp

Factors of production, What are the 4 scarce, factors of production and wha...

What are the 4 scarce, factors of production and what is a description of each of them. What are the costs to these resources?

Econ, Christina Romer and Jared Bernstein in "The Job Impact of the America...

Christina Romer and Jared Bernstein in "The Job Impact of the American Recovery and Reinvestment Plan" calibrated the impact of the proposed expansionary fiscal policy (we know it

A spiral approach and a waterfall approach, What is the difference in chang...

What is the difference in changing the scope between a spiral approach and a waterfall approach? Ans) The scope of needs changes in Waterfall model is less than that in Spiral M

World leaders to be part of a team, You have been invited by world leaders ...

You have been invited by world leaders to be part of a team of international economists selected to make recommendations on how the international community might work together more

Economics, Malaysia’s Bank Negara has cut the country’s economic growth for...

Malaysia’s Bank Negara has cut the country’s economic growth forecast to between 4 and 5 percent for 2012, weighed down by Europe’s economic woes. Discuss ONE (1) demand-management

Population growth is greater than the growth of real output, If population ...

If population growth is greater than the growth of real output, A. real per capita Gross Domestic Product (GDP) growth will be less than the growth of real Gross Domestic Product

Explain initial actual markup, George has been selling 5,000 T-shirts per m...

George has been selling 5,000 T-shirts per month for $8.50. When he increased the price to $9.50 he sold only 4,000 T-shirts. What is the demand elasticity? If his marginal cost is

Overnight rates and interest rates with longer maturity, Q. Overnight rates...

Q. Overnight rates and interest rates with longer maturity? By controlling overnight interest rates, central bank will affect interest rates with longer maturity. Main reason f

Money market with inflation and constant money supply growth, Q. Money mark...

Q. Money market with inflation and constant money supply growth? If π M = π and π e = π, both IS- and LM-curve will be fixed.  Figure: The money market with inflatio

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