Macro Foundations · advanced
What moves on the Phillips Curve diagram
The NAIRUNAIRUThe unemployment rate at which inflation neither accelerates nor decelerates, the economy's sustainable floor. is set by structural forces; reforms shift the LRPC itself, relaxing the long-run constraint.
The vertical LRPC marks the economy's sustainable unemployment floor.
Better job-matching and training shift the natural ratenatural rateThe unemployment level set by structural forces (matching, turnover, institutions) rather than the business cycle. left.
The economy can now run hotter without accelerating inflationinflationA sustained rise in the overall price level, eroding money's purchasing power., structural reform moved what monetary policymonetary policyCentral-bank control of interest rates or the money supply to steer inflation and output. never could.
Examiners ask this as: nairu falls, structural reform unemployment, matching improves.
Other scenarios on Phillips Curve