ECON 102 Lecture Notes - Lecture 20: Monetarism, Disinflation, Rational Expectations
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ECON 102 Full Course Notes
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Lecture 20: money in usual times: the philips curve. Usual : periods of moderate inflation, fast inflation and fast deflation were both typical pre-1950, but unter the bretton. Productive growth falls below its long run level (resources utilized below natural levels) Productive growth rises above its long run level (resources utilized above natural levels) Inflation on vertical axis, unemployment on the horizontal axis. Expansionary policies tend to cause inflation, while contractionary policies tend to reduce inflation: in high-inflation times, the only way to fight inflation is to create a recession, which people do not like. Okun"s law: cyclical unemployment = -1/2 * output gap: cyclical u = actual natural, actual u = natural u * output gap. Business cycles are related to unemployment and inflation. There is a well defined sr tradeoff between the two when business cycles are generated by ad shocks. Philips curves aren"t stable in the presence of supply shocks.
