Graphical Derivation of the Phillips Curve from the WS-PS Model
The graphical derivation of the Phillips curve from the wage-setting and price-setting (WS-PS) model visually demonstrates the model's core prediction: lower unemployment leads to higher wage and price inflation. This process constructs the inverse relationship between unemployment and inflation, linking the supply-side mechanics of the labor market to the empirically observed Phillips 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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Graphical Derivation of the Phillips Curve from the WS-PS Model
Definition of the Real Wage
Figure 4.8: Phillips's Original Data and Curve for British Wage Inflation and Unemployment (1861–1913)
Explanatory Power of WS-PS and Phillips Curve Models for Oil Price Shocks
Cost of Job Loss and its Relation to Unemployment
In an economy with a very low unemployment rate, a persistent increase in the general price level is observed. Based on the theoretical framework of wage and price setting, what is the primary causal chain that explains this phenomenon?
A sustained period of very low unemployment can lead to a continuous increase in the general price level. Arrange the following events in the correct causal order that describes this process according to a wage-setting and price-setting framework.
Labor Market Dynamics and Price Stability
Firms' Pricing Behavior and Inflation
The Role of the Bargaining Gap in Generating Inflation
According to the wage-setting and price-setting framework, when unemployment is low, the resulting cycle of nominal wage and price increases leads to a sustained rise in the real wage for workers.
Match each labor market condition or action with its most direct consequence within a wage-setting and price-setting framework that links unemployment to inflation.
In a wage-setting and price-setting framework, the discrepancy between the real wage that workers can secure due to their bargaining power and the real wage that firms are willing to offer to maintain their profit margins is known as the __________. This discrepancy is the direct driver of inflation.
Evaluating a Policy of Low Unemployment with Price Controls
An economy is operating at an unemployment level where workers' wage demands are consistent with firms' profit margins, resulting in stable prices. A sudden surge in aggregate demand causes unemployment to fall significantly below this level. What is the most likely immediate outcome according to a wage-setting and price-setting framework?
The Wage-Setting Process and the 'No-Shirking' Wage
Structural Unemployment as the Inflation-Stabilizing Rate
WS-PS and Phillips Curve Explanation for Oil Price Shocks
Graphical Derivation of the Phillips Curve from the WS-PS Model
An economy experiences a year where the average nominal wage for workers increases by 5%, while the general level of prices for goods and services increases by 8%. Based on this information, what is the most accurate conclusion about the workers' purchasing power during this year?
Evaluating a Wage Negotiation Outcome
A 10% increase in the nominal wage will always result in an increase in the real wage, regardless of the change in the general price level.
Calculating and Interpreting Real Wage
Formula for the Real Wage
Learn After
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