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HomeHomework HelpeconomicsLong Run Phillips Curve

Long Run Phillips Curve

The Long Run Phillips Curve illustrates the relationship between unemployment and inflation over a longer time horizon, indicating that there is no trade-off between the two once the economy reaches its natural rate of unemployment. In this context, the curve intersects the short-run Phillips Curve at the natural rate, typically representing stable inflation levels regardless of short-term fluctuations. Understanding this concept is crucial for students as it helps them analyze economic policies and their long-term implications on unemployment and inflation rates.

intermediate
2 hours
Economics
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Overview

The Long Run Phillips Curve is a fundamental concept in economics that illustrates the relationship between inflation and unemployment over an extended period. Unlike the short-run Phillips Curve, which suggests a trade-off between the two, the long-run perspective indicates that the economy adjusts...

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Key Terms

Phillips Curve
A curve that shows the inverse relationship between inflation and unemployment.

Example: The Phillips Curve suggests that lower unemployment leads to higher inflation.

Inflation
The rate at which the general level of prices for goods and services rises.

Example: A 2% inflation rate means prices increase by 2% over a year.

Unemployment
The situation when individuals who are capable of working are unable to find a job.

Example: The unemployment rate is 5% when 5 out of every 100 people are unemployed.

Natural Rate of Unemployment
The level of unemployment that exists when the economy is at full employment.

Example: The natural rate of unemployment is often around 4-5%.

Aggregate Supply
The total supply of goods and services that firms in an economy plan to sell during a specific time period.

Example: An increase in aggregate supply can lead to lower prices.

Monetary Policy
The process by which the central bank manages the money supply to achieve specific goals.

Example: Lowering interest rates is a common monetary policy tool.

Related Topics

Short Run Phillips Curve
Focuses on the immediate relationship between inflation and unemployment, differing from the long run perspective.
intermediate
Monetary Policy Tools
Explores various tools used by central banks to influence the economy, including interest rates and reserve requirements.
intermediate
Aggregate Demand and Supply
Examines the total demand and supply in the economy and their impact on inflation and employment.
intermediate

Key Concepts

InflationUnemploymentNatural Rate of UnemploymentAggregate Supply