Macro Foundations · intermediate
What moves on the Phillips Curve diagram
Expected inflationinflationA sustained rise in the overall price level, eroding money's purchasing power. enters wage- and price-setting directly, shifting the SRPC up one-for-one.
Start with expectationsexpectationsBeliefs about the future that shape behavior today, the hinge variable of modern macroeconomics. anchored.
Workers and firms start EXPECTING higher inflationinflationA sustained rise in the overall price level, eroding money's purchasing power., the entire short-run tradeoff shifts up.
Same unemployment, more inflationinflationA sustained rise in the overall price level, eroding money's purchasing power.: the menu got worse without any realrealAdjusted for inflation, measured in actual purchasing power. shock. This is why central banks obsess over anchoring.
Examiners ask this as: expectations rise phillips, srpc shifts up, de-anchored.
Other scenarios on Phillips Curve