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  3. What is the Phillips curve? What does it purport to show? Why might we be inter

What is the Phillips curve? What does it purport to show? Why might we be inter

游客2025-06-21  3
问题  What is the Phillips curve? What does it purport to show? Why might we be interested in the relationship suggested by the Phillips curve? Explain.
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答案 The Phillips curve depicts an inverse relationship between inflation and the unemployment rate, based on empirical data over the 1950s and 1960s. It purports to show that a stable trade-off exists between unemployment and inflation. The interest in the Phillips curve arises because it presents governments with a dilemma in economic policy. Manipulation of aggregate demand fails to shift the inflation unemployment trade-off; that is the position of the Phillips curve.
Demand management policies only enable a choice to be made about the position of the economy on the Phillips curve—low unemployment and high inflation or, by accepting higher levels of unemployment, lower levels of inflation. Thus the existence of the Phillips curve implies it is impossible to achieve low inflation and full employment simultaneously.
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