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1. Distinguish between short run phillips curve andlong run phillips curve through an appropriatediagram. Explain why the shape of the phillipscurve is different in the short run and long run. |
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Answer» hii I think that it helpsExplanation:The long-RUN PHILLIPS curve is a vertical LINE that illustrates that there is no permanent trade-off between inflation and unemployment in the long run. However, the short-run Phillips curve is roughly L-shaped to reflect the initial inverse relationship between the two variables.The Phillips curve SHOWS the inverse trade-off between rates of inflation and rates of unemployment. If unemployment is high, inflation will be low; if unemployment is low, inflation will be high.The Phillips curve and aggregate demand share similar components. The Phillips curve is the relationship between inflation, which affects the price level ASPECT of aggregate demand, and unemployment, which is dependent on the real output portion of aggregate demand. Consequently, it is not far-fetched to say that the Phillips curve and aggregate demand are actually closely related. |
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