Chapter 28 – INFLATION AND UNEMPLOYMENT
Two sources of inflation: Demand-pull, Cost-push
Demand-pull starts because aggregate demand increases.
Cost-push inflation starts by an increase in costs. Two main sources of cost increase are: increase in the
money wage rate, an increase in money prices of raw materials.
Stagflation is the combination of rising price level and decreasing real GDP.
Rational expectation is a forecast that is based on all the relevant information.
Relationship and short-run trade off between inflation and unemployment is called Phillips curve.
Short-run Phillips curve shows the relationship between inflation and unemployment, holding constant:
the expected inflation rate, natural unemployment rate.
Long-run Phillips curve shows the relationship between inflation and unemployment when the actual