Long Run Phillips Curve April 6, 2015

Long Run Phillips Curve (LRPC)
-Because the long run Phillips curve exists at the natural rate of unemployment(Un), structural changes in the economy that affect Un will also cause the LRPC to shift 
-Increases in Un will shift LRPC ->
-decreases in Un will shift LRPC <-

Relating Phillips Curve to AS/AD
-changes in the AS/AD model can also be seen in the Philips Curves
-an easy way to understand how changes in the AS/AD model affect the Phillips Curve is to think of the two sets of graphs as mirror images.
-NOTE: The 2 models are not equivalent. The AS/AD model is static, but the Phillips Curve includes change over time. Whereas AS/AD shows one time changes in the price level as inflation or deflation, the Phillips curve illustrates as continuous change in the price level as either increased inflation or disinflation. 

Period of Stagflation 
-high inflation high unemployment
-Civil Rights movements
-Women's right
-Baby boom era
-End of Vietnam 
-All embargo (1973 & 1979)

Disinflation
-reduction in the inflation rate from year to year which is usually displayed in the long run Phillips curve
-also occurs when aggregate demand declines 
Short run: profits fall and the unemployment rate increases

Deflation
-actual drop in the price level