Unemployment and inflation are an economy’s two most important macroeconomic issues. The federal government’s fiscal policy and the Federal Reserve’s monetary policy try to maintain both a low unemployment rate around a natural rate and a low inflation rate around 2%.
1. Evaluate the historical relationship between unemployment and inflation.
2. Distinguish between the short-run and the long-run in a macroeconomic analysis. Why is the relationship between unemployment and inflation different in the short-run and the long-run?
3. Assess the recent 20-year U.S. unemployment and inflation data. Do the current U.S. unemployment and inflation data confirm the short-run Phillips curve?
4. Analyze why the recent 20-year U.S. unemployment and inflation data approves or disproves the short-run Phillips curve.
5. Evaluate whether the Phillips curve can still validly resolve today’s issue of unemployment and inflation and forecast unemployment and inflation. Why or why not?
