A manager needs to monitor:
The Phillips Curve shows an inverse correlation between () and () using data from 1861 - 1958. It implies the Fed could achieve low unemployment at the cost of high inflation.
The Phillips Curve broke down in the 1970s when Lyndon Johnson inaugurate Great Society social programs while the Fed kept interest rates low.
So is there a tradeoff between inflation and unemployment? Milton Friedman and Edmund Phelps says:
Describe major takeaways briefly.
The Fed can’t reduce unemployment, except temporarily. Low inflation is much more preferable than high inflation as high inflation tends to have more volatile interest rates which can make it harder for businesses to plan and reduces bankers and investors confidence. ## Business decisions and profit squeezes
prices of inputs and outputs
It’s easier to pass on costs increases when the following is true:
Long term contracts should often include price-adjustment clauses. Adjustment clauses should be carefully drafted to ensure that both parties benefit over the widest possible range of eventualities.
The Consumer Price Index is not perfectly accurate, but it does a good job of showing changes in the inflation rate. For business-analysis purposes, custom-created weighted averages are usually more appropriate.
A business for whom raw materials constitute a major cost should hedge against the risk of sharp increases in the price of raw materials by:
Explan each of the following terms in your own words. The author explains the terms in the textbook. If necessary, you may also Google the term on the Web. Good resources include:
Explain the terms in your own words briefly.
The decrease in the purchasing power of money and increase of prices. ### Consumer Price Index (CPI) All commonly bought goods and services by the typical urban consumer. ### Producer Price Index (PPI) The average change in the prices of goods as sold to the wholesaler.
An economic model stating that the higher the inflation the lower the unemployment.
Measures the percentage of a company’s possible output that is actually being realized.
When the costs of living goes up but wages don’t.
Describe the characteristics of the following events briefly.
The author writes the Phillips Curve broke down in the 1970s. Elaborate. Yes so the Phillips model stated that the higher the inflation the lower the unemployment and during the 1970’s we had high inflation and high unemployment so it broke the The Phillips Curve model.