What shape does the short run Phillips Curve take, and what relationship does it show?

It slopes downwards from left to right and is convex to the origin, showing an inverse trade-off in which lower unemployment comes with higher inflation.

What causes the short run Phillips Curve to shift upwards?

A rise in expected inflation, because workers build the expected price rise into their wage demands, so any given rate of unemployment now comes with higher inflation.

Describe the shape and position of the long run Phillips Curve.

It is a vertical line at the natural rate of unemployment, showing that in the long run there is no trade-off between inflation and unemployment.

At what point does the long run Phillips Curve intersect a short run Phillips Curve?

At the point where actual inflation equals expected inflation, which occurs at the natural rate of unemployment.

OCR A-Level Economics H460

Introduction to Microeconomics

Topic overview Economic and free goods, scarcity and positive and normative statements Economic agents and the factors of production Factor rewards, rationality and the objectives of economic agents Incentives and the functions of the price mechanism Market, planned and mixed economies and allocative and productive efficiency Opportunity cost, trade-offs and the production possibility curve Shifts of the production possibility curve and uses of opportunity cost

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Macroeconomics: Economic Policy Objectives

Short and long run Phillips Curves and their usefulness

3 things to know
Component 02

Overview

Recall questions on the short run and long run Phillips Curves, what shifts them, the adjustment to expansionary policy, stagflation, and the curve's usefulness to policymakers.

What you need to know

Answer each one before you reveal it.

Your recallNot started

Numbers

What historical episode undermined the original Phillips Curve, and how did economists respond?

Process

Explain why the short run Phillips Curve slopes downwards.

Key term

What is plotted on each axis of a Phillips Curve?

Questions from this subtopic

Each one with the model answer underneath.

1
What is plotted on each axis of a Phillips Curve?
Model answer
The rate of inflation is on the vertical axis and the rate of unemployment is on the horizontal axis.
2
What shape does the short run Phillips Curve take, and what relationship does it show?
Model answer
It slopes downwards from left to right and is convex to the origin, showing an inverse trade-off in which lower unemployment comes with higher inflation.
3
Explain why the short run Phillips Curve slopes downwards.
Model answer
As unemployment falls, labour becomes scarcer, so workers can bargain for higher money wages and firms pass those higher costs on as higher prices.
4
What causes the short run Phillips Curve to shift upwards?
Model answer
A rise in expected inflation, because workers build the expected price rise into their wage demands, so any given rate of unemployment now comes with higher inflation.
5
Describe the shape and position of the long run Phillips Curve.
Model answer
It is a vertical line at the natural rate of unemployment, showing that in the long run there is no trade-off between inflation and unemployment.
6
At what point does the long run Phillips Curve intersect a short run Phillips Curve?
Model answer
At the point where actual inflation equals expected inflation, which occurs at the natural rate of unemployment.

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Introduction to Microeconomics

Microeconomics: The Role of Markets

Microeconomics: Business Objectives

Microeconomics: Market Structures

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