Figure: Labor Market Equilibrium and the Phillips Curve with Positive Expected Inflation
This two-panel figure illustrates the connection between the labor market equilibrium and the Phillips curve when expected inflation is positive. The top panel displays the wage-setting/price-setting (WS-PS) model, with employment on the horizontal axis and the real wage on the vertical axis. It features an upward-sloping, convex wage-setting (WS) curve and a horizontal price-setting (PS) curve. Their intersection at point A represents the supply-side equilibrium (N_SSE), where the bargaining gap is zero. The unemployment rate (e.g., 6%) is determined by the difference between the labor force and the equilibrium employment level. The bottom panel shows the corresponding Phillips curve for a given positive inflation expectation (e.g., 2%). Point A is mapped onto this curve, indicating that at the supply-side equilibrium level of employment, the actual inflation rate is equal to the expected rate.
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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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Ch.5 Macroeconomic policy: Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
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Figure: Labor Market Equilibrium and the Phillips Curve with Positive Expected Inflation
Figure: Labor Market Equilibrium and the Phillips Curve with Positive Expected Inflation
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