(BQ) Part 2 book "Macroeconomics - Policy and practice" has contents: Aggregate supply and the phillips curve, the aggregate demand and supply model, macroeconomic policy and aggregate demand and supply analysis, the financial system and economic growth, the financial system and economic growth, fiscal policy and the government budget,.and other contents. | Aggregate Supply and the Phillips Curve 11 Preview In the 1960s, the Kennedy and Johnson administrations followed the advice of Nobel Prize winners Paul Samuelson and Robert Solow and pursued expansionary macroeconomic policies to raise inflation a little bit, with the expectation that unemployment would be permanently lower. They were disappointed when, in the late 1960s and the 1970s, inflation accelerated and yet the unemployment rate stayed uncomfortably high. To understand why they were wrong, we turn to a concept called the Phillips curve, which describes the relationship between unemployment and inflation. In the preceding chapter, we derived the aggregate demand curve, which shows the relationship between the inflation rate and the level of aggregate output when the goods market is in equilibrium. But how do we determine aggregate output and inflation? The aggregate demand curve provides half of the story; we also need to factor in the relationship between these two variables that is provided by the aggregate supply curve, which we develop in this chapter. The Phillips curve provides the intuition for the aggregate supply curve. First, we will see how the economic profession’s views on the Phillips curve have evolved over time and how this evolution has affected thinking about macroeconomic policy. Then we can use the Phillips curve to derive the aggregate supply curve, which will allow us to complete our basic aggregate demand-aggregate supply framework for analyzing short-run economic fluctuations in the next chapter. The Phillips Curve In 1958, New Zealand economist . Phillips published a famous empirical paper that examined the relationship between unemployment and wage growth in the United For the years 1861 to 1957, he found that periods of low unemployment were associated with rapid rises in wages, while periods of high unemployment were characterized by low growth in wages. Other economists soon extended his .
