Two historical exceptions to the short-run Phillips Curve model are known as the Goldilocks economy and stagflation.

Two historical exceptions to the short-run Phillips Curve model are known as the Goldilocks economy and stagflation.

The Phillips Curve Model (Professor follow-up Response)

Two historical exceptions to the short-run Phillips Curve model are known as the Goldilocks economy and stagflation. Please discuss both economic phenomena in their historical context. Which recent periods are also associated with each exception to the Phillips Curve model, if any?

#6 The Phillips Curve Model (Student Response)

The Phillips Curve is described in the chapter as, “a curve that shows the short-run trade-off between inflation and unemployment.”

Chapter 22 mentions how the Phillips Curve model is related to the AD/AS model by showing “the combinations of inflation and unemployment that arise in the short run as shifts in the aggregate-demand curve move the economy along the short-run aggregate-supply curve.”

Meanwhile, the short-run Phillips Curve shows us the curve in a trade-off between inflation and unemployment, while the long-run Phillips curve at the natural rate of unemployment is a vertical line; therefor the inflation and unemployment are not related in the long run.

Reference

Mankiw, N. G. (2015). Principles of Macroeconomics (7th ed.). Stamford, CT: Cengage Learning.

Solution preview

An economic condition that is neither ‘too hot’ to influence inflation nor ‘too cold’ to cause a recession is known as a Goldilocks economy. In the early 1990s, David Shulman of Salomon Brothers, came up with this economics……………………..

APA

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