Short run

           

            Unlike
the long run, the short run Philips Curve is shaped like an L. If we compare
them together we can see the difference and that the long run is vertically
aligned while the other one has many more variables. This is one of the many
examples that shows that the short run is more precise.

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            The
Philips Curve says that in theory when the unemployment rises the inflation has
a fall and the other way around, but unlike the long run, in the short run
there exists a more clearer trade-off point because companies employ more
people therefore the employment falls, but then the wages rise because workers
are demanding therefore inflation rises.

            Monetarists
do believe that the long run is less elastic than the short one because when
more people are employed there is an increased aggregate demand and therefore
they demand higher nominal wages. Once they do get the nominal wages they
believe that the money that will be received will be more therefore it will put
in more labor hours. When they realize that their wages haven’t changed
statistically due to the inflation they spend less time with extra labor and
the output returns to the original.

            For
instance in the United States between 1979 and 1983 we can observe a fall from
15% to 2.5% in the inflation and the unemployment rose from 5% to 11% meaning
that the Philips’ research along side with Samuelson’s and Solow’s were right
and have been used and this is just one particular example for when the short
run has been used.

            

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