?The Phillips curve framework shows a short-run trade-off between inflation and the unemployment rate, yet in the long-run it also shows that there is no such trade-off.? Explain this contention and consider the view that the lack of any long-run trade-of
Your assignment requires you to focus mainly on the material in Unit 6 of the
course, Expectations, Inflation and Interest Rates and, to a lesser extent, the material
in Unit 4. You should begin with the core reading, namely Miles and Scott, Chapter
16, and with a consideration of the expectations- augmented Phillips curve
framework. You should analyse the impact of demand management policies and
their affect on the rate of inflation in the short run and in the long run. In particular
you should consider the concept of the ?Sacrifice Ratio? and how in particular
countries this ratio may depend on the nature of the labour market. You should
consider how economic agents form expectations of future inflation rates and how
this may influence the impact of policy. This issue is also looked at in Unit 4 under
the heading of ?Taylor rules?. You should look at the paper in the course reader by
Mankiw, Reis and Wolfers. Other issues to consider are time consistency and the
credibility of policy and how these impact on the ability of any government to meet
its objectives.
