ECON 1040 Ch. 17

A basis for the slope of the short-run Phillips curve is that when unemployment is high there are

downward pressures on prices and wages.

When aggregate demand shifts right along the short-run aggregate supply curve, unemployment

falls, so there are upward pressures on wages and prices.

In the long run,

inflation depends primarily upon the money supply growth rate.

The short-run relationship between inflation and unemployment is often called

the Phillips curve

The short-run Phillips curve shows the combinations of

unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve.

Economist A.W. Phillips found a negative correlation between

wage inflation and unemployment.

One determinant of the natural rate of unemployment is the

minimum wage rate.

One determinant of the long-run average unemployment rate is the

minimum wage, while the inflation rate depends primarily upon the money supply growth rate.