Unemployment vs inflation

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ECON 104
Robert Pollin

Economics 104: Intro to Macroeconomics Joseph Francis 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
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