ECON 3440 Lecture Notes - Lecture 44: Unemployment, Phillips Curve
25 Dec 2017
School
Department
Course
Professor
Document Summary
This says if there is cyclical unemployment then firms decrease price (recession) and this decrease below e. Notice if there is no cyclical unemployment (u=u*) then inflation rate is equal to. In 1950s & 1960s we had fixed exchange rate, which resulted in stable inflation, and stable e. Also in 1950s & 1960s we had steady growth in productivity which gave us a steady u*. Then in 1970s we had the great productivity slowdown, which u*. This on it its own shifts p. c. to right. Faced with higher unemployment central banks created inflation , hoping to it. They could create inflation because we had flexible exchange rate in 1970s. People then e to e unemployment rate did not fall (inflation could not increase productivity). We ended up having high inflation & high unemployment: this gave us a p. c. for 1970s that was very high. Then in early 1980s the central bank adopted target inflation of 4%.
