Fill in the Blanks Module 34Online version The Phillips Curve - Fill-in-the-Blank by Zachary Foust 1 down movements supply negative demand demand AS inflation up Phillips AD along oil Looking at historical data for Britain , the economist Alban W . H . found that when the unemployment rate was high , the wage rate tended to fall . Economists soon found a similar relationship between the unemployment rate and the rate of . The short - run Phillips curve represents the short - run relationship between the unemployment rate and the inflation rate . The Phillips curve is tied to the - model An increase in aggregate leads to a fall in the unemployment rate and an increase in the inflation rate . A decrease in aggregate leads to a rise in the unemployment rate and a fall in the inflation rate . Other things equal , increases and decreases in aggregate demand result in to the left and right the short - run Phillips curve . Changes in aggregate also affect the Phillips curve . Supply shocks , such as sudden changes in the price of , shift the short - run aggregate supply curve and the short - run Phillips curve . A negative supply shock shifts SRPC ( right ) , increasing the inflation rate and the unemployment rate . A positive supply shock shifts SRPC ( left ) , decreasing the inflation rate and the unemployment rate . 2 expected downward experience power workers upward The expected rate of inflation is the rate that employers and expect in the near future . Changes in the rate of inflation affect the short - run Phillips curve . Workers want a wage rate that takes into account future declines in the purchasing of earnings . An increase in expected inflation shifts the short - run Phillips curve ( rightward ) . A decrease in expected inflation shifts the short - run Phillips curve ( leftward ) . People base their expectations about inflation on . 3 short long choice In the - run , policymakers have a : they can choose to accept the price of high inflation in order to achieve low unemployment , or they can reject high inflation and pay the price of high unemployment . In the - run , it is not possible to achieve lower unemployment by accepting higher inflation . 4 matches above below change long high persistent A attempt to trade - off lower unemployment for higher inflation leads to accelerating inflation over time . To avoid accelerating inflation over time , the unemploment rate must be enough that the actual rate of inflation the expected rate of inflation . The unemployment rate at which inflation does not over time is known as the nonaccelerating inflation rate of unemployment ( NAIRU ) . Keeping the unemployment rate the NAIRU leads to ever - accerlating inflation and cannot be maintained . The long - run Phillips curve ( LRPC ) shows the relationship between unemployment and inflation in the run . Any unemployment rate the NAIRU leads to decelerating inflation . 5 NAIRU swings natural The natural rate of unemployment is the portion of the unemployment rate unaffected by of the business cycle . The is another name for the natural rate . The level of unemployment the economy needs in order to avoid accelerating inflation is equal to the rate of unemployment .
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