Map of Airport West

Map of Airport West for This does not invalidate the Phillips Curve relationship rather it simply highlights the point that the curve may shift and the economy may have changed in some way. Indeed, with regard to unemployment, it is unexpected inflation that is relevant, not its level. Rearranging the expression of inflation one can express the unemployment rate as a function of the natural rate of unemployment and unexpected inflation. Doing so one obtains: u = u* – (1/k)(p – pe) In the long run, if people and business owners have rational expectations of price changes then inflation will equal expected inflation on average. Thus according to the expectations-augmented Phillips Curve, the actual unemployment rate will coincide with the natural rate in the long run and the long-run Phillips Curve is vertical. This implies that changes in the nominal money supply, which affect interest rates and aggregated demand, cannot affect output or unemployment in the long run and therefore money is long-run neutral. Consequently, the Phillips Curve suggests that policymakers can exploit the trade-off between inflation and unemployment in the short run, but not in the long run. Map of Airport West 2016.

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