Long Run Phillips Curve
EconplusDal・7 minutes read
The long run Phillips curve highlights the economy's return to full employment in the long term, emphasizing the importance of supply-side policies. Understanding the short run Phillips curve and classical ADN model is essential to grasp this concept of economic self-adjustment.
Insights
- The Long Run Phillips curve predicts that the economy will inevitably revert to its Natural rate of unemployment, highlighting the importance of implementing supply-side policies for lasting growth and lower unemployment rates.
- In the Classical model, a rise in aggregate demand results in heightened output, inflation, and a decline in unemployment levels, showcasing the intricate relationship between economic factors and their consequences.
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Recent questions
What is the long run Phillips curve?
The long run Phillips curve shows that output will always return to Full Employment level in the long term.
How does the classical model respond to increased aggregate demand?
An increase in aggregate demand in the classical model leads to increased output, inflation, and a reduction in unemployment.
How does the short-term Phillips curve differ from the long run Phillips curve?
The short-term Phillips curve does not explain how the economy self-adjusts, but eventually, it returns to Full Employment due to wage adjustments and cost push inflation.
What is the significance of supply-side policies in relation to the long run Phillips curve?
The long run Phillips curve indicates that the economy will always return to the Natural rate of unemployment, emphasizing the need for supply-side policies for sustainable growth and reduced unemployment.
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Summary
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Economy's Return to Full Employment: Analysis
- The long run Phillips curve shows that output will always return to the Full Employment level in the long term.
- To understand the long run Phillips curve, one must watch videos on the short run Phillips curve and the classical ADN model.
- An increase in aggregate demand in the classical model leads to increased output, inflation, and a reduction in unemployment.
- The short-term Phillips curve does not explain how the economy self-adjusts, but eventually, it returns to Full Employment due to wage adjustments and cost push inflation.
- The long run Phillips curve indicates that the economy will always return to the Natural rate of unemployment, emphasizing the need for supply-side policies for sustainable growth and reduced unemployment.
