Inflation and Unemployment

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9 Terms

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Okun’s Law

For every 2% decrease in GDP, unemployment increases by 1%

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Low inflation

Single digit, people trust money

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Galloping inflation

Double or triple digit, people hold minimal amounts of money

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Hyperinflation

million or trillion percent, economy no longer functions

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Economic impact of inflation

Redistribution of income, economic inefficiency

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Causes of Inflation

Demand Pull, Cost Push, Inertial

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Phillips Curve

Shows short run relationship between inflation and unemployment

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What shifts phillips curve?

Expected inflation changes

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How much does it cost to reduce inflation?

reducing inflation costs 4% of one year’s GDP per 1% inflation reduced