Explain about phillips curve, Macroeconomics

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Q. Explain about Phillips curve ?

The Phillips curve 

According to traditional Phillips curve, there is a negative and stable relationship between unemployment andwage inflation.

Figure: The Phillips curve

18_Explain about Phillips curve.png

Some comments on the Phillips curve

  • Phillips curve was initially an empirical relationship between unemployment and wage inflation that was observed in many nations. It was usurped rather quickly and many Keynesian economists and integrated into theory as it allowed them to determine inflation within the model.
  • Phillips curve wasn't a part of Keynes original theory. Relationship was discovered long after Keynes wrote the 'General theory'. Consequently many prefer to view the Phillips curve as an addition to Keynesian model - not as a part of the Keynesian model.
  • The Phillips curve is generally interpreted as an important political curve. Some view this curve as giving government a choice of low unemployment or low inflation (or something in between). Most economists, though, do not share this view.
  • Phillips curve can also be interpreted in the terms of business cycle. In a boom, Y is high; U is low and p is high. Whereas in a recession, opposite holds. In a boom, we are at a point up on the left on Phillips curve, whereas in a recession, we are at the bottom right. Business cycles may be viewed as oscillations between these two points.

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