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What trade-off do governments face according to the short run Phillips curve?
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What is the long run Phillips curve argued to be vertical at?
In a downturn with higher rates of unemployment, there will be less demand pull pressure on price levels, resulting in lower or potentially negative inflation, known as deflation.
The short run Phillips curve shows a trade-off between inflation and unemployment, where governments can choose to accept higher inflation for lower unemployment with expansionary policies or keep inflation low with contractionary policies and accept higher unemployment.
What happens when a government uses expansionary fiscal policies to bring down unemployment according to the short run Phillips curve?
The long run Phillips curve is argued to be vertical at the non-accelerating inflation rate of unemployment (NAIRU), indicating that in the long run, attempts to lower unemployment below its natural level will trigger accelerating inflation.
The policy implications of the short run Phillips curve suggest that governments face a classic trade-off between inflation and unemployment, where they can either accept higher inflation for lower unemployment or keep inflation low and accept higher unemployment.
What are the policy implications of the short run Phillips curve for governments?
How can a government effectively reduce the natural rate of unemployment without causing inflation to accelerate, based on the understanding of the long run Phillips curve?
In a scenario where a country is experiencing high inflation and low unemployment, what short-term trade-offs might the government consider to stabilize the economy, based on the short run Phillips curve?
Considering the long run Phillips curve, what long-term strategies should governments prioritize to achieve sustainable economic growth without triggering inflation?