Macroeconomics

The short-run
Phillips curve
(SRPC)

By student: Tran Thi Anh
Thu
Lecturer: Mr. Lam Manh
Ha

Definition
Inflation rate

Short-run Phillips curve
• A curve illustrating the
inverse short-run relationship
between the unemployment
rate and the inflation rate

INFLATION
UNEMPLOYME
NT
(SRPC)
Unemployment rate

Expected Inflation
1960s-1970s,
Friedman
andthe
Phelps
– level
⚬In
Expected
inflation
measures
price
introduced
new variable:
Inflation that peoplea hope
it will beExpected
in the future.
for inflation
the theory
about the
presence
2
⚬explain
Expected
is shown
graphically
asofthe
Phillip
curves,
SRPCthat
and intersects
LRPC.
point on
the SRPC
the
LRPC.

Expectations & the
SRPC
Inflation rate

• Each SRPC reflects a
particular expected rate
of inflation.

(LRPC)

5%
4%
2%

B
C
A

(SRPC2)
(SRPC1)
Unemployment rate

Expectations & the
SRPC
• When
expected
inflation changes -->
SRPC shifts.
⚬ Because
expected
inflation has a trend to
follow and catch up
with actual inflation.

 No stable short-run
Phillips curve

Inflation rate

(LRPC)

5%

B

D
(SRPC2)

2%

A
(SRPC1)
Unemployment rate

What is the relationship
between the SRPC and
the AD-AS model?

1

(AD) shifts --> Movement along the
(SRPC)

• Positive shock in Demand  AD curve shifts right, there is a
movement along the SRPC to the left.
Price level

Inflation rate
(LRAS)

B

P2
P1

(LRPC)

(SRAS1)

B
5%

A
(AD2)

A

3%

(SRPC1)

(AD1)
Yn Y2

Out put

U2

Un

Unemployment rate

2

The (SRAS) shifts --> The (SRPC) shifts

• Negative shock in Supply  SRAS curve shifts left, it causes the SRPC
to shift upward.
• At point B, the economy faces Stagflation.
PL

(SRAS2)

P2
P1

B

Inflation rate

(SRAS1)

(LRPC)

Stagflation
A

B
5%
(AD)

3%

(SRPC2)

A

(SRPC1)
Y2

Y1

Real GDP

Un

U2

Unemployment rate

THANK
YOU