Can someone give a good explanation of LR/SR Philips Curve

CFA Level I
#1

I continue to struggle with this.

#2

i cannot. but i can tell you that long run is the natural rate of employment and it vertical. unanticipated inflation causes short run curves and increased unemployment

#3

sorry. for got to say that it measures the negative relationship of inflation and unemployment

#4

Yeah. I’ve got those fundamentals. … shift in SR curve is a shift in expectation on inflation, etc… just always get questions that make NO sense.

#5

ryanwtyler Wrote: ------------------------------------------------------- > i cannot. but i can tell you that long run is the > natural rate of employment and it vertical. > unanticipated inflation causes short run curves > and increased unemployment in the long run, i think economy moves to NAIRU, in the short run, there is a lot of shocks and thus the INVERSE relationship b/t inflation and empymt.

#6

Also, changes in unexpected inflation can shift the SR Phillips Curve up or down.

#7

rlange Wrote: ------------------------------------------------------- > Also, changes in unexpected inflation can shift > the SR Phillips Curve up or down. How can that be? The whole premise of the curve is that is is based on the expect inflation

#8

The unexpected inflation will cause a movement either to the left or right on the original SR Phillips Curve. This will be offset by an adjustment of either fiscal or monetary policy that will try to bring the point on the SR Phillips Curve back to the LR Phillips Curve (where unemployment is at it’s natural rate). Tightening of the money supply will lower the SR Phillips Curve, where a larger money supply will raise the SR Phillips curve.

#9

I think that the main focus of the Phillips Curve is to demonstrate that the level of unemployment affects the inflation rate.

#10

i thought inflation effected unemployment. not other way round. the idea of unanticipated inflation is that when the wage workers receive buys them less goods than they expected then demand for those wages goes down (lower supply of workers, higher unemployment) is that wrong? i also read where unanticipated inflation has all the negative effects that high anticipate inflation plus wealth is transferred from lenders to borrowers and employees to employers