Phillips Curve-About Phillips Curve:
What is the Phillips curve?
Phillips curve is used to indicate an alternative trade-offs between unemployment and inflation, the relationship curve, by the New Zealand statistician William Phillips (AWPhillips) in 1958 in the "1861-1957 in the United Kingdom and the unemployment rate of change of money wages the relationship between "the first to propose a text. Since then, economists have done a lot of theoretical explanation, especially the original Samuelson and Solow said that the money wage rate of unemployment and the relationship between the Phillips curve alternately become used to indicate the unemployment rate and the relationship between the alternating inflation curve.
In 1958, Phillips-year period 1867-1957 under the UK unemployment rate and rate of change of money wages statistics experience, proposed to indicate a change in money wage rates of unemployment and the relationship between the turn of the curve. This curve shows that: when unemployment is low, the money wage rate is higher; Conversely, when unemployment is high, the money wage rate is low, even negative. According to cost-push theory of inflation, the inflation rate can be expressed in money wages. Therefore, this curve can be expressed between the rate of unemployment and inflation alternating relationship. The high unemployment that the economy is in recession phase, when the water is relatively low wages and prices, which will lower the rate of inflation; Conversely low unemployment rate, indicating that the economy is in a boom phase, when wage and price levels are higher, which inflation rate also high. Unemployment and inflation exists between the relationship between changes in the opposite direction.
Phillips curve is an important point:
Phillips curve made several important points are as follows:
First, the cost-push inflation is caused by the wage, which is cost-push inflation theory. It is in this theory, the growth rate of money wages linked up with inflation.
Second, the existence of alternative unemployment and inflation trade-off relationship, they are likely to coexist, which is the negation of the Keynesian view.
Third, when the unemployment rate for the natural rate of unemployment (u) when the inflation rate is 0. Therefore, the natural rate of unemployment can be defined as the unemployment rate when inflation is 0.
Fourth, as the unemployment and inflation trade-off relationship exists between the alternatives, so you can use expansionary macroeconomic policies, with a higher inflation rate in exchange for a lower unemployment rate, you can also use the macro-tightening economic policy, in exchange for a higher unemployment rate lower inflation rate. This is the choice of macroeconomic policies to provide a theoretical basis.
