Question

What happened in the 1970s and early 1980s to cast doubt on the Phillips curve?

Answer 1

Answer:

in 1970s and 80s the Phillip's curve started losing its appeal since it was regarded as a transitory, short-run relationship. It was believed that the unemployment and inflation rates have no relation in the long-run and the curve appears as a vertical line after a few years. In the 70s and 80s the rate of inflation continued worsening causing the Phillips Curve to shift outward. After a few years, the rate dropped drastically and the Philip's curve shifted inwards. The relationship depicted at this point was stable. Although inflation rates decreased, the natural unemployment rate in this period increased. The supply shocks arising from hiking prices of oil in this period contradicted the Phillips curve since there was a high level of inflation and unemployment.

Answer 2

Answer:

Phillip's curve lost its appeal in the 1970s and 80s. The supply shocks arising from hiking prices of oil in this period contradicted the Phillips curve since there was a high level of inflation and unemployment. After a few years, Philip's curve shifted inwards.

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