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Chapter 28

Chapter 28 - Inflation, Unemployment.docx

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ECON 1010
Steven Edwards

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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 inflation rat
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