Ec10b Lecture 14: Inflation and Unemployment

This set of flashcards covers vocabulary and key formulas regarding inflation types, the Phillips Curve, and economic stabilization based on the Ec10b Principles of Economics lecture.

Inflation

Based on the quantity theory of money where velocity growth is zero, this is calculated as $ext{money supply growth rate} - ext{real GDP growth rate}$, or $ext{m} - ext{y}$.

Core inflation

A rough or imperfect proxy for demand that measures the Consumer Price Index whilst excluding volatile categories such as food and energy.

Natural rate of unemployment

The equilibrium rate of unemployment to which the economy tends to return, also referred to as full employment or $NAIRU$.

Short-run Phillips Curve

A function where inflationary pressures are a result of the unemployment rate, expressed by the formula $ext{Inflation} = ext{Expected inflation} - f( ext{unemployment rate} - ext{natural rate}) + ext{supply shock}$.

Stagflation

A specific economic state where both unemployment and inflation increase simultaneously, a phenomenon experienced by the United States during the 1970s.

Demand-Pull Inflation

Inflation driven by increases in demand, which may be caused by rising incomes, tax cuts, or falling interest rates.

Hard Landing

The process of reducing inflation through a deliberate recession, such as the $Volcker$ disinflation which used high interest rates to lower inflation.