Answer to Question #315739 in Microeconomics for Vibhu

Question

Explain the classical and Keynesian point of view regarding trading more inflation for less unemployment Philip curve ( short run and long run)

Answer 1

"Aggregate supply is absolutely inelastic with respect to prices," according to Classicals, and "it (aggregate supply) is always at full employment level of output." "Aggregate supply is absolutely elastic with respect to pricing until the full employment level of output is reached," according to Keynes.

The Phillips curve is a relationship between inflation and unemployment. According to the Phillips curve, unemployment and inflation are inversely related: as unemployment falls, inflation rises. The relationship, on the other hand, is not a straight line. When the unemployment rate is on the x-axis and the inflation rate is on the y-axis, the short-run Phillips curve follows an L-shape graphically.