Economics: Phillips Curves, Fiscal Policy, and Long-Run Growth

Traditional Phillips Curve

A short-run tradeoff between inflation and unemployment.

Long-run Phillips Curve

No tradeoff between inflation and unemployment.

Short-run Phillips Curve

A tradeoff between inflation and unemployment.

Causes of short-run inflation

Increases in aggregate demand.

Upward movement on the Phillips Curve

Increased aggregate demand.

AD-AS model and Phillips Curve

AD shifts cause movements along the SRPC.

Supply-side economics

Policies that increase production by reducing taxes and regulations.

Deficit spending

Government spending more than it collects in taxes.

Velocity of money

The rate at which money circulates through the economy.

Balanced budget

Spending equals revenue.

Crowding out

Government borrowing raises interest rates, reducing private investment.

Public debt

Total accumulation of past deficits.

Budget surplus

Revenue exceeds spending.

Real GDP per capita

Average output per person; standard of living.

Promoters of long-run economic growth

Technology, capital, and education.

Expectations adjustment

When moving from SRPC to LRPC, unemployment returns to natural rate.

Long-run growth effects on living standards

Increases productivity and real income.

Supply-side policy and growth

By increasing incentives to produce (lower taxes, fewer regulations).

Recession

Output falls, unemployment rises.

Fiscal policy and cost-push inflation

Reduce spending or raise taxes.

Causes of long-run growth

Better technology, more capital, higher productivity.