-because the lrpc exists at the natural rate of unemployment (Un) structural changes in the economy that affect Un will also cause the lrpc to shift
-increase in Un will shift lrpc ->
-decrease in Un will shift lrpc <-
The Short-Run Phillips Curve
-SRPC has a trade-off between inflation and unemployment (when one increases the other decreases). (inverse relationship)
The Short-Run Phillips Curve
-SRPC has a trade-off between inflation and unemployment (when one increases the other decreases). (inverse relationship)
LRPC: There is no trade off between inflation and unemployment.
1. The economy produces at the full employment output level.
2.It is represented by a vertical line.
3. It occurs at the natural rate of unemployment.
-Natural unemployment rate (NRU)= Frictional +Structural +Seasonal
-Full employment = 4-5%
-LRAS shifters also shifts LRPC.
-The major LRPC assumption is that more worker benefits create higher natural rates and fewer worker benefits create lower natural rates.
Major lrpc
More worker benefits create higher rates
Few worker benefits creates lower rates
Supply shocks
-caused by rapid and significant increases in resource cost
-causes SRAS to shift
Example
-oil price
-baby boom
-trade pact
Misery index
-combination of Un and inflation in any given year
-single digit misery is good
Laffer Curve itself simply illustrates the tradeoff between tax rates and the total tax revenues actually collected by the government.
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