Equivalence of Shape Between the Phillips Curve and the WS Curve
Under the specific assumptions of the WS-PS model—namely, a constant real wage determined by a horizontal price-setting (PS) curve and an inflation rate that is equal to the bargaining gap—the resulting Phillips curve will have the exact same shape as the wage-setting (WS) curve.
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Introduction to Macroeconomics Course
Ch.4 Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
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Real Wage Index Assumption for Phillips Curve Derivation
Impact of Increased Aggregate Demand on Unemployment in a Business Cycle Upswing
Figure 4.9: Graphical Derivation of the Phillips Curve from the Bargaining Gap
Equivalence of Shape Between the Phillips Curve and the WS Curve
Figure 4.10: Deriving the Phillips Curve from the Causal Chain of Aggregate Demand, Unemployment, and Inflation
Consider a graphical model of the labor market where an upward-sloping 'wage-setting' relationship determines the real wage required to motivate workers at different levels of employment, and a horizontal 'price-setting' relationship determines the real wage firms can offer while maintaining their profit margins. If the economy is operating at a level of employment above the intersection point of these two relationships, what does this imply when plotting the corresponding point on a graph with inflation on the vertical axis and employment on the horizontal axis?
A macroeconomic model explains the relationship between unemployment and inflation using two underlying relationships in the labor market: an upward-sloping 'wage-setting' relationship and a horizontal 'price-setting' relationship. Arrange the following steps to correctly describe the causal chain that traces a point on the inflation-unemployment curve when the economy moves to a level of employment above the equilibrium where the two labor market relationships intersect.
Calculating Inflation from the Labor Market
In a standard graphical derivation from a labor market model, where an upward-sloping wage-setting relationship and a horizontal price-setting relationship are used to plot an inflation-employment curve, the resulting inflation-employment curve will have the same shape as the wage-setting relationship.
Impact of Structural Changes on the Inflation-Employment Relationship
A macroeconomic model derives an inflation-employment curve from a labor market model containing a wage-setting and a price-setting relationship. Match each concept from the labor market model to its direct consequence on the derived inflation-employment curve.
Deriving the Inflation-Employment Relationship
Consider a graphical model used to derive the relationship between inflation and employment. The model's starting point is a labor market graph with an upward-sloping 'wage-setting' relationship and a horizontal 'price-setting' relationship. The 'price-setting' relationship corresponds to a real wage index of 100. At an employment level of 97%, the 'wage-setting' relationship indicates a required real wage index of 103. Based on this information, what point is plotted on the corresponding inflation-employment graph?
Consider a labor market model represented on a graph with the real wage on the vertical axis and the level of employment on the horizontal axis. In this model, an upward-sloping 'wage-setting' (WS) curve intersects a horizontal 'price-setting' (PS) curve at an equilibrium point 'A'. At a higher level of employment, a point 'B' lies on the WS curve, vertically above the PS curve. Based on the graphical derivation method where the vertical gap between the WS and PS curves determines the inflation rate, which of the following accurately describes the corresponding inflation-employment curve?
In a graphical model where an inflation-employment curve is derived from a labor market model, if the level of employment is such that the real wage on the upward-sloping 'wage-setting' relationship is lower than the real wage on the horizontal 'price-setting' relationship, the resulting vertical gap corresponds to a rate of ______ on the inflation-employment curve.
Real Wage Formula
Starting Point for Phillips Curve Derivation
Phillips Curve's Shape as a Reflection of the Wage-Setting Curve
Deriving the Phillips Curve from the WS-PS Model with Positive Expected Inflation
Learn After
In a framework where the inflation-unemployment trade-off is derived from labor market interactions, it is often assumed that the resulting inflation-unemployment curve has the same shape as the wage-setting curve. Which of the following scenarios would cause the shape of the inflation-unemployment curve to deviate from the shape of the wage-setting curve?
Applying Labor Market Assumptions
In a model where the real wage is constant and the rate of inflation is determined solely by the vertical distance between the wage demanded by workers and this constant real wage, the resulting relationship between inflation and unemployment will be identical in shape to the curve representing the wage demanded by workers at different levels of unemployment.
Conditions for Shape Equivalence
Explaining the WS-Phillips Curve Relationship
In a simplified model where the inflation-unemployment trade-off is derived from labor market dynamics, specific assumptions link the components of the labor market to the final inflation outcome. Match each component or assumption of this model to its direct consequence.
In a simplified economic model, assume the real wage offered by firms is constant at all levels of employment. If the curve representing the wage demanded by workers is convex (i.e., it becomes steeper as unemployment falls), and the inflation rate is determined solely by the difference between the demanded wage and the offered wage, then the resulting curve showing the relationship between inflation and unemployment must also be ____.
In an economic model where the relationship between inflation and unemployment is derived from the labor market, a specific set of assumptions leads to a direct correspondence between the shape of the 'wage-demanded' curve and the 'inflation-unemployment' curve. Arrange the following statements into the correct logical sequence that demonstrates this correspondence.
Predicting the Shape of the Inflation-Unemployment Curve
Inferring Price-Setting Behavior