Unit 5

Unit 5
The Phillips Curve
The Phillips curves shows the relationship between unemployment and inflation. This only occurs i the short run.

The LRPC occurs at the natural rate of unemployment, which is represented by a vertical line. There is no trade off between unemployment and inflation in the long run.
The long run only shifts if the LRAS curve shifts. The major LRPC assumption is that more worker benefits create higher natural rates and fewer worker benefits create lower natural rates.
LRAS=LRPC

3 Types of Unemployment That Give You the Natural Rate:
Seasonal
Frictional
Structural
The natural rate of unemployment is 4-5%. Full Employment is the same as the natural rate of unemployment.

SRPC:
...has relevance to Okuns Law, and has an inverse relationship occurring between the unemployment rate and the inflation rate.
High inflation=low unemployment
High unemployment= Low inflation

What is "Reagonomics?"

Reagonomics, aka Supply Side, is the study of economists believing that the AS curve will determine levels of inflation, unemployment, and economic growth to increase the economy. You take actions to shift the AS curve to the right, always benefitting the company first. 

If they reduce marginal tax rates, you encourage more people to work longer in which they would forego their leisure time for extra income. Lower taxes are an incentive for businesses to invest in our economy, and create lower interest rates fir increases in business investment.

The Laffer Curve

This is a trade off between tax rates an government revenue, used t support supply side arguments. 

As tax rates increase from 0, tax revenues increase from 0 to some maximum level and then decline.

Criticism:'

Research suggests that impact of tax rates on incentives to work, save, and invest are all. Tax cuts also create demand, which can fuel inflation, which will cause demand to exceed supply.