TheShort-RunandLong-RunPhillipsCurves17.2LEARNINGOBJECTIVEExplaintherelationshipbetweentheshort-runandlong-runPhillipscurves11of36@2015PearsonEducation,lnc
LEARNING OBJECTIVE © 2015 Pearson Education, Inc. 11 of 36 The Short-Run and Long-Run Phillips Curves 17.2 Explain the relationship between the short-run and long-run Phillips curves
ThePhillipsCurvesinthe1960sInflationLong-runThroughout the early 1960s,Phillipsrate(percentcurveinflation waslow-aboutperyear)1.5%.7%6Firms and workers expectedthis rate to continue, but51.AstheU.S.economy'sequilibriummoveduptheinflation was higher in the lateshort-runPhillipscurve4duringthe1960s...1960s, about 4.5%, due to3...butactually3expansionary monetary andexperiencedan2....workersandfirmsinflationrateofexpectedaninflationfiscal policies.4.5percent.2rateof1.5percent...Becausethiswas1Short-runPhillipscurveunexpected, the economy0234561%7Unemploymentmoved along the short-runrate (percent)Phillips curve,resulting inlow unemployment of 3.5%.Figure 17.4The short-run Phillipscurveofthe 1960sandthe long-run Phillips curve12of36@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 12 of 36 The Phillips Curves in the 1960s Throughout the early 1960s, inflation was low—about 1.5%. Firms and workers expected this rate to continue, but inflation was higher in the late 1960s, about 4.5%, due to expansionary monetary and fiscal policies. • Because this was unexpected, the economy moved along the short-run Phillips curve, resulting in low unemployment of 3.5%. The short-run Phillips curve of the 1960s and the long-run Phillips curve Figure 17.4