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In the diagram, the long-run Phillips curve is the vertical red line. The NAIRU theory says that when unemployment is at the rate defined by this line, inflation will be stable. However, in the short-run policymakers will face an inflation-unemployment rate trade-off marked by the "Initial Short-Run Phillips Curve" in the graph.
In economics a trade-off is expressed in terms of the opportunity cost of a particular choice, which is the loss of the most preferred alternative given up. [2] A tradeoff, then, involves a sacrifice that must be made to obtain a certain product, service, or experience, rather than others that could be made or obtained using the same required resources.
In the long-run, owing to the dichotomy, money is not assumed to be an effective instrument in controlling macroeconomic performance, while in the short-run there is a trade-off between prices and output (or unemployment), but, owing to rational expectations, government cannot exploit it in order to build a systematic countercyclical economic ...
This concept suggests that there is a trade-off between unemployment and inflation in the short run, but in the long run, the economy will return to the natural rate of unemployment, which is determined by structural factors such as the skills of the labour force and the efficiency of the labour market.
The long-run contrasts with the short-run, in which there are some constraints and markets are not fully in equilibrium. More specifically, in microeconomics there are no fixed factors of production in the long-run, and there is enough time for adjustment so that there are no constraints preventing changing the output level by changing the ...
10. Society faces a short-run tradeoff between inflation and unemployment. Peter Bofinger has criticized the book for creating the "impression that the economic principles explained correspond to a kind of economic consensus", which it denies. [12]
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A short-run monopolistic competition equilibrium graph has the same properties of a monopoly equilibrium graph. Long-run equilibrium of the firm under monopolistic competition. The company still produces where marginal cost and marginal revenue are equal; however, the demand curve (MR and AR) has shifted as other companies entered the market ...