Phillips conjectured that the lower the unemployment rate, the tighter the advertise trade and, therefore, the faster firms must raise wages to attract uncommon labor. At high rates of unemployment, the pressure abated. Phillipss curve represented the average relationship between unemployment and wage sort over the business cycle. It showed the rate of wage inflation that would ensue if a particular level of unemployment persisted for some time.
Imagine that unemployment is at the raw(a) rate. The real wage is constant: workers who expect a given rate of price inflation insist that their wages increase at the same rate to prevent the erosion of their purchasing power. Now, imagine that the government uses expansionary monetary or financial policy in an attempt to lower unemployment below its natural rate.
The resulting increase in demand encourages firms to raise their prices faster than workers had call upd. With higher revenues, firms are willing to employ more workers at the old wage rates and even to raise those rates somewhat. For a short time, workers suffer from what economists call money illusion: they contain that their money wages have rise and willingly release more labor. Thus, the unemployment rate falls. They do not realize salutary away that their purchasing power has fallen because prices have risen more rapidly than they expected. But, over time, as workers come to anticipate higher rates of price inflation, they supply less labor and insist on increases in wages that keep up with inflation. The real wage is restored to...If you want to get a luxuriant essay, order it on our website: Ordercustompaper.com
If you want to get a full essay, wisit our page: write my paper
No comments:
Post a Comment