ECON 102 Lecture 20: 11.22.16
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ECON 102 Full Course Notes
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Lecture 20: money in the unusual times: the phillips curve. Today: the usual effects of money on unemployment, and its relation to inflation: the philips curve. In us experience post-wwii, roughly 1% - 15% (annual) inflation. Fast inflation and fast deflation were both typical pre-1950 - what we have now is no the historical norm. Throughout history, fluctuations of inflation was normal. Under the bretton woods monetary system (and after its collapse) that is, modern central banking low, stable, positive inflation has been the norm. Bretton woods - a worldwide agreement for a more stable monetary system. Our ad-as model gives us a relationship between unemployment (via production relative to full employment levels) and inflation. The keynesian business cycle model is driven by ad shocks. Recessions caused by negative ad shocks: productive growth falls below its long run level (resources are utilized below their natural levels) (output falls, falling off the ppf - underusing our resources, inflation falls.
