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Created 3/10/1998
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Expected Inflation and the Natural Rate of Unemployment

J. Bradford DeLong
delong@econ.berkeley.edu
http://www.j-bradford-delong.net


What determines the location of the Phillips curve when drawn on a graph with unemployment on the horizontal and inflation on the vertical axis? Two things determine the location of the Phillips curve: the expected rate of inflation and the natural rate of unemployment.

The Phillips curve must pass through that point on the graph at which actual inflation is equal to expected inflation, and at which the actual rate of unemployment is equal to the natural rate of unemployment.

Any shift in the natural rate of unemployment (and the natural rate of unemployment can shift) will shift the Phillips curve to the left or the right. Any shift in expected inflation (and expected inflation does shift) will shift the Phillips curve up or down.

The Phillips Curve    A Steep Phillips Curve    A Shallow Phillips Curve  


Professor of Economics J. Bradford DeLong, 601 Evans Hall, #3880
University of California at Berkeley
Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax
delong@econ.berkeley.edu
http://www.j-bradford-delong.net/

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