Unemployment and inflation are an economy’s two most important macroeconomic issues. The federal government’s fiscal policy and the Federal Reserve’s monetary policy try to maintain both a low unemployment rate around a natural rate and a low inflation rate around 2%.
- Evaluate the historical relationship between unemployment and inflation. (hint: You may start from A.W. Phillips’s finding of the relationship between unemployment and inflation.)
- Distinguish between the short-run and the long-run in a macroeconomic analysis. Why is the relationship between unemployment and inflation different in the short-run and the long-run?
- Assess the recent 20-year U.S. unemployment and inflation data. Do the current U.S. unemployment and inflation data confirm the short-run Phillips curve?
- Analyze why the recent 20-year U.S. unemployment and inflation data approves or disproves the short-run Phillips curve.
- Evaluate whether the Phillips curve can still validly resolve today’s issue of unemployment and inflation and forecast unemployment and inflation. Why or why not?
- Recommend any policy, method, or opinions for the current U.S. unemployment and inflation as a policy maker for either fiscal policy or monetary policy (or both).
The Short-Run and Long-Run Relationship Between Unemployment and Inflation Final Paper