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

Willing to hold money, Was money a better store of value in the United Stat...

Was money a better store of value in the United States in the 1950s than it was in the 1970s? Why or why not? In which period would you have been willing to hold money? Which one w

Damaging to the economy, Why do financial crises occur and why are they so ...

Why do financial crises occur and why are they so damaging to the economy?

International Trade, How can an economy achieve mutual gain from Internatio...

How can an economy achieve mutual gain from International Trade?

Reciprocal demand, what are the factors effecting reciprocal demand?

what are the factors effecting reciprocal demand?

#title.williams managerial discretion model, The different between williams...

The different between williams managerial discretion model and baumol''s sales maximization model

Chartered a bus to atlanta, A group has chartered a bus to Atlanta. The dri...

A group has chartered a bus to Atlanta. The driver costs $200, the bus costs $500, and parking in Atlanta will be $90. You have already paid $700 to reserve the bus and a driver. T

Income elasticity, If 5000 units are sold and income increases by 20% with ...

If 5000 units are sold and income increases by 20% with an income elastiticy of +2, what will the number of sales units be after the increase

What is inflation, Q. What is Inflation? Inflation between two points i...

Q. What is Inflation? Inflation between two points in time is defined as percentage increase of price index between these two points in time.  Comments: Price inde

National income determination, impact of change in government expenditure a...

impact of change in government expenditure and tax on fiscal policy

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