Since the 1980s the nation's Phillips curve appears to have shifted to the left.What are the causing factors?
Answer:
I'm surprised a 'teacher' will tell someone not to learn about the philips curve, seeing that almost all other unis still give a brief intro of it to the students. help the poor lad won't you? he's curious to learn :)
Anyway, the short run philips curve suggests that as price level goes up, the unemployment goes down, and the government has a 'menu' of price level to choose from, and that it is a reversible process.
the short term philips curve argues that there is a trade-off between inflation and unemployment, but it started to break down when it was noticed that stagflation happened.
stagflation is falling output and employment, yet higher prices. This is caused by supply side inflation. though price levels went up there was lower employment rate and output. this is because as costs(not selling price) goes up, firms produce less, thus there is a lower output and yet higher price level.
hence the long run philips curve, a vertical line, was suggested, and it mentions that in the long run there is no trade off between unemployment and inflation.
The natural rate hypothesis also attempts to explain that any attempt to bring the unemployment rate below the natural rate will result in an ever-increasing or acclerating rate of inflation. ie, there is no short run philips curve.
conclusion: philips curve might not be accurate in the sense that once inflation takes place, the output can still fall.
The Phillips Curve was one of the worst-thought-out mistakes ever to gain popularity. It worked only in the narrowest of contexts, with some inaccurate definitions -- discard it; it's useless.
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