Chp. 13: Unemployment and Inflation

1
Chp. 13 Unemployment and Inflation

• Focus
• Twin Evils of Macroeconomics
• Inflation and Unemployment
• Phillips Curve
• Lucas Critique

2

• Phillips Curve There is negative relationship
  between inflation and unemployment
• ? -hu
• Phillips curve broke down in 70s.

3

• Expectation-Augmented Phillips Curve
• Negative association between unanticipated
  inflation (?- ?e) and cyclical unemployment (u
  uf).
• Lucas Critique Changes in policies affect
  economic behavior. The historical relationship
  among variables need not hold if policy changes.
• There is no trade-off between inflation and
  unemployment in the long run.