Economics 104: Intro to Macroeconomics
April 2, 2014
SHORT PAPER ASSIGNMENT #5
Considering the U.S. economy from 1950 – 2009, is it accurate to say that there is
always a trade-off between unemployment and inflation? Compare evidence on a
decade-by-decade basis. What do the patterns show? What conclusions can one
reasonably draw from these patterns?
As we grow and mature as an economy we can look back realize that it is safe to
say that there is a trade off between unemployment and inflation. In relation, we can
look at the Phillips curve and see that there is an inverse relationship between
unemployment and inflation. In other words the governments policy makers have the
option to prioritize either unemployment or inflation.
This was evident during the 1950’s and 1960’s when the Phillips curve,
recommended that there was a trade off between inflation and unemployment. This
influenced policy makers to influence the rate of economic growth by using fiscal and
monetary policies. Meaning that if unemployment was high and inflation was low,
aggregate demand could be stimulated by policy makers in order to reduce
unemployment while at the same time creating more inflation.
However, this changed drastically in the 1970’s. All of sudden there seemed to be
a change in the Phillips curve as the economy reached a stagflation. This means that
both unemployment and inflation are higher at the same time. Monetarist economists [Type text] [Type text] [Type text]
began to criticize the Philipp’s curve and