But it's not Phillip's curve
An inverse relationship between inflation and unemployment.
What is the relationship of the Phillips Curve?
When people expect the future to look like today.
What are adaptive expectations?
In an economy, actual inflation in year 0 is 2% and in year 1 it jumps to 6%. Under adaptive expectations, this is the inflation expectation for year 1.
What is 2%?
The ability to produce more with the same quantity of resources.
What is absolute advantage?
A tax on imports.
What is a tariff?
What are inflation and unemployment?
Rational expectations posit that people think about inflation like this.
What is using all available information to form forward-looking expectations?
If Madagascar can produce 100 oz of vanilla or 2 sweaters per week, this is the opportunity cost of one sweater.
What is 50 oz of vanilla?
Trade is this type of game.
A limit on the quantity of a good that can be imported.
What is an import quota?
These two economists formalized the Phillips Curve in U.S. data.
Who are Samuelson and Solow?
The guy who said only surprise inflation reduces unemployment.
Who is Milton Friedman?
In an economy, actual inflation in year 0 is 2% and in year 1 it jumps to 6%. Under adaptive expectations, this is the inflation error for year 1.
What is 4%?
If the U.S. imports steel and China imports bacon, this suggests each country has this.
What is comparative advantage in the good they export?
Infant industry protection, anti-dumping, national security, and special interests are all examples of these.
What are trade barriers?
How policymakers reduce unemployment by the Phillips Curve.
What is unexpected higher inflation?
The unemployment rate when the population correctly anticipates inflation.
What is u*?
In an economy, actual inflation in year 0 is 2% and in year 1 it jumps to 6%. Under rational expectations, this is the inflation error for year 1.
What is approximately 0%?
The reason why countries with absolute advantage should still specialize.
What is still having a comparative advantage in at least one good?
What happens to consumer prices when tariffs are imposed.
What are prices rise?
The reason why the Phillips curve failed in the 1970s.
What is stagflation caused by an adjustment in inflation expectations?
This development is the reason we know there is no LR Phillips curve and usually isn't an SR Phillips curve.
What are rational expectations?
Before trade, the U.S. produces 9 bacon and 3 steel; China produces 1 bacon and 2 steel. After specialization, the U.S. makes only bacon and China makes only steel. The U.S. shifts one worker from steel to bacon (+9 bacon, –3 steel). China shifts 3 workers from bacon to steel (–3 bacon, +6 steel). These are the total numbers of bacon and steel that are gained from trade.
What are +6 bacon and +3 steel gained from trade?
What happens to total world output when nations specialize according to comparative advantage.
What is total output or total GDP increases?
Language differences or geographic distance are examples of these.
What is a natural trade barrier?