The implications of the short-run Phillips curve and the long-run Phillips curve for economic policy
The short-run Phillips curve tells policymakers they can trade lower unemployment for higher inflation. The long-run curve shows that trade-off disappears once workers adjust their expectations.
Real World
When the Bank of England cut interest rates to 0.5% after 2008, it aimed to reduce unemployment using the SRPC trade-off — but policymakers knew rising inflation expectations could shift the SRPC upward, ultimately limiting the gain.
Exam Focus
For 'evaluate' questions, argue the policy works short-run but fails long-run as expectations shift — this directly targets the highest AO3 marks.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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