Problem :
What relationship does the Phillips curve describe?
The Phillips curve describes the relationship between inflation and
unemployment.
Problem :
Explain the chain of events that underlies the relationship between
inflation and unemployment described by the Phillips curve.
As more people work, the national output increases, causing wages to increase,
causing consumers to have more money to spend more, resulting in consumers
demanding more on goods and services, finally causing the prices of goods and
services to increase, that is, inflation.
Problem :
What is the equation for the Phillips curve?
The equation for the Phillips curve is (inflation) = (expected
inflation) - B * (cyclical unemployment rate) + (error).
Problem :
Define stagflation and explain its implications.
Stagflation is the situation in which both inflation and unemployment increase.
It is a phenomenon that raises questions about the general applicability of the
Phillips curve.
Problem :
How is the Phillips curve best used?
The Phillips curve is useful not as a means of picking an unemployment and
inflation rate pair, but rather as a means of understanding how unemployment and
inflation might move given historical data.
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