The Phillips Curve and The Quantity Theory of Money

1128 WordsFeb 24, 20184 Pages
Task 1 The Phillips curve represents the inverse relationship between inflation rate and the unemployment rate. When the unemployment was high, the inflation rate would be low; the inflation rate was high, the unemployment rate would be low. Here we have the statistics data of the inflation rate and unemployment rate from 2007-2011. On the other hand, Phillips's “curve” also represented the average relationship between unemployment and wage behavior over the business cycle. In the short run, there is a tradeoff between inflation rate and unemployment rate. In this graph, we can see the part of the statistics date of past 5 years. In 2007, the inflation rate is only 2.01%, but we got 3.84% unemployment rate. In 2008, we have 4.32% inflation rate, which have a big increasing rate, but there is only 3.66% unemployment rate and even have drop a little. In 2009, the inflation rate is 0.52%, which is the smallest number in this graph, but we got 5.17% unemployment rate and that is the biggest number in the graph. In 2010, there is 2.39% inflation rate, it start climbing up, and 4.27 unemployment rate shows that it is turning down. And in 2011, we got 5.11% inflation rate, its keep increasing, 3.38% unemployment rate, keep decreasing, share the inverse trend with the inflation rate. Look in to all these Number; we can say the situation of this statistics is prefect match with the model of Phillips Curve in Macroeconomics. As this kind of situation happened, one of the reasons
Open Document