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According to the Friedman-Phelps analysis, in the long run actual inflation equals expected inflation and unemployment is at its natural rate.
Friedman-Phelps
An economic theory associated with Milton Friedman and Edmund Phelps, focusing on the natural rate of unemployment and the relationship between inflation and unemployment.
Actual Inflation
The real rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.
Natural Rate
The level of any economic factor, such as unemployment or interest rates, that is unaffected by short-term fluctuations and is determined by long-term factors.
- Gain insight into how inflation and unemployment are related in both immediate and extended timelines.
- Recognize how expectations contribute to the effectiveness of monetary policy actions.
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Learning Objectives
- Gain insight into how inflation and unemployment are related in both immediate and extended timelines.
- Recognize how expectations contribute to the effectiveness of monetary policy actions.
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