The Student Room Group
Reply 1
The extent of the trade-off between inflation and unemployment. A steep slope suggests unemployment is relatively unresponsive to inflation rate changes - small unemployment changes are only associated with large inflation rate changes. The converse is also true.
Reply 2
Book
The extent of the trade-off between inflation and unemployment. A steep slope suggests unemployment is relatively unresponsive to inflation rate changes - small unemployment changes are only associated with large inflation rate changes. The converse is also true.


Do you mean the output gap or unemployment? :confused:

The question wants to know what affects the slope of it. I mean in particular what factors produce the slope that ultimately measures the trade-off between inflation and the output gap.
Reply 3
Unemployment since this is on the x axis.

For your second question: I suggest you look up this topic in a textbook. - Pay particular attention to the Lucas Critique, Goodhart's Law and the role of Inflation expectations more generally. They'd explain it far better than I could. If you've got any more specific questions, I'll try to answer them.
Reply 4
lol, if your feeling particularly ambitions I'd study the Basic NAIRU Model - difficult to crack (well I thought it was really hard!) but a really sophisticated model, so well worth it IMO. All depends on how much detail your looking to go into. Good luck!
Reply 5
Book
Unemployment since this is on the x axis.

For your second question: I suggest you look up this topic in a textbook. - Pay particular attention to the Lucas Critique, Goodhart's Law and the role of Inflation expectations more generally. They'd explain it far better than I could. If you've got any more specific questions, I'll try to answer them.


According to my textbook, the output gap (y-y*) is on the x-axis--not the unemployment (u-u*)-- and the change in inflation is on the y-axis. PC has a positive slope, with slope v (bar).

NOOOOOOO I don't want to read the text haha...well not until this weekend.
Reply 6
Well then I suggest your work reflects that.

Do remember that the Philips Curve was initially just a simple, statistically significant correlation between wage inflation and unepmoyment for UK for a particular time period (as I understand it). AE Philips himself only postulated that such a trade-off exists, and did not try to explain it.

However, since, various graphs "in the spirit" of the original Philips Curve have been termed Philips Curves. To be honest, if you were refering to anything other than the original Philps Curve you should have been more explicit... but you have now.. so dosen't matter :smile: .