Transcript No Slide Title

Chapter 15
Unemployment, Inflation,
and Growth
GDP and Its Natural Path
GDP
Y
Y*
Time
Figure 15.1
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Quantity of output supplied
Y*2
Y*1
Figure 15.2A
Growth and the Real Wage
Panel A
Production
function in year 2
Production
function in year 1
Y*2 – Y*1
=g
Y*1
L*
Quantity of labor employed
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w (Real wage)
Growth and the Real Wage
Panel B
w*2
w*1
U*
Labor
supply
Demand
for labor
in year 2
Demand
for labor
in year 1
L*
Quantity of labor employed
Figure 15.2B
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( )
Inflation rate
DP
P
(Classical) Inflation and Growth
Aggregate
supply
Slope of the
aggregate demand
curve is -1.
DM
M
DP = DM – g
P
M
g
Growth rate of output
Figure 15.3
( )
DY
Y
Aggregate demand
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Quantity of output supplied
Real Wage Growth and Aggregate
Supply: The Neoclassical Model
Panel A
Y*2
Y2
Y1 = Y*1
Figure 15.4A
Production function
in year 2
Production function
in year 1
Y 2 – Y1
<g
Y1
L2
Quantity of labor employed
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w (Real wage)
Real Wage Growth and Aggregate
Supply: The Neoclassical Model
Panel B
w2
w*2
w1 = w*1
w2 - w1
w >g
Figure 15.4B
U2 > U*
U1 >U*
Demand for
labor in year 2
Demand for
labor in year 1
L2 L1 = L*
Quantity of labor employed
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0.050 Productivity and the real
wage move together.
in 1974 they
0.045 Beginning
both slowed down.
0.040
0.30
Index of real wage
Index of productivity
The Third Industrial Revolution
0.25
0.20
0.035
0.030
0.15
0.025
1930’35 ’40 ’45 ’50 ’55 ’60 ’65 ’70 ’75 ’80 ’85 ’90
Box 15.1
Productivity (left scale)
Real wage (right scale)
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Inflation rate
(DP/P)
LRAS
SRAS
(
(
Dw - g
w
Dynamic Aggregate Supply
in the Neoclassical Model
Slope of the SRAS
curve is b.
g
Growth rate of output
(DY/Y)
Figure 15.5
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The History of Inflation, 1949–1959
Percentage per year
10
8.0
6.0
4.0
2.0
0.0
1949’50 ’51 ’52 ’53 ’54 ’55 ’56 ’57 ’58 ’59
Price inflation
Figure 15.6A
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The History of Inflation, 1959–1969
Percentage per year
10
8.0
6.0
4.0
2.0
0.0
1959’60 ’61 ’62 ’63 ’64 ’65 ’66 ’67 ’68 ’69
Price inflation
Figure 15.6B
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Wage inflation
(percentage per year)
10
8
6
4
2
Wage Inflation and Unemployment
Panel A: 1949–1959
The slope of the
1951
Phillips curve in
this sample is -2.
1952 1955
1956
1950
1953
1959
1957
1958
1954
1949
0
Figure 15.7A
0
2
4
6
8 10
Unemployment rate percentage
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Wage inflation
(percentage per year)
10
8
6
4
Wage Inflation and Unemployment
Panel B: 1959–1969
This is the same
curve
as
the
one
1968
1969
in
panel
A
1964
1966
1967
1965
2
1959
1962
1963
1961
1960
0
Figure 15.7B
0
2
4
6
8
10
Unemployment rate percentage
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Dynamic long-run
aggregate supply curve
(
DM - g
M
(
Inflation rate (DP/P)
The Neoclassical Model
Panel A
Dynamic shortrun aggregate
supply curve
g
Figure 15.8A
Growth rate of
output (DY/Y)
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(
Dw - g
w
(
Inflation rate (DP/P)
The Neoclassical Model
Panel B
Dynamic longrun aggregate
supply curve
Dynamic shortrun aggregate
supply curve
g
Figure 15.8B
Growth rate of
output (DY/Y)
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Natural rate of
unemployment
DPE
P
Wage equation
(w
Dw
(
- g (Excess wage inflation)
The Neoclassical Model
Panel C
Figure 15.8C
U*
Unemployment rate
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END