- Can someone explain how to understand and analyze the Phillips curve in simple terms, and how shifts are determined? 2. Why does the Monetary Base = (reserve requirement ratio + Currency) * Deposits 3. Why does Quantity of money = (1 + Currency) * Deposits Thanks
I can help with the first. There are two curves, short-run and long-run. Short run holds natural rate of unemployment and expected inflation constant. Any unanticipated increase (decrease) in demand will cause a lower (higher) unemployment rate, and higher (lower) inflation. This is a movement along the curve. Changes in the expected inflation will move the curve up or down. Long-run curve is simply a vertical line at the natural rate of unemployment. Any inflation is possible at a given natural unemployment rate, and as inflation expectations change, the short-run curve moves up and down with an intersection to the long-run curve at that inflation rate. Long-run curve only moves in horizontal shifts when the natural rate of unemployment changes.