ECON 248 17.2 Shifts In The Phillips Curve: The Role Of Expectations

In the long run, there is no tradeoff between inflation and unemployment, meaning the Phelps curve is a ().

Straight Line

A policy change that reduced the natural rate of unemployment would shift the long-run Phillips curve to the left. Additionally, the aggregate supply curve would shift ().

Right

() measures how much people expect the overall price level to change.

Expected Inflation

Unemployment Rate is calculated as the following:

natural Rate Of Unemployment - a(Supply Curve Slope) * (Actual Inflation - Expected Inflation)

When expansionary policy decreases unemployment, the short run phillips curve (), while the long-run, () rises.

Shifts Right, Expected Inflation

The claim that unemployment eventually returns to its normal, or natural, rate, regardless of the rate of inflation

Natural-Rate Hypothesis