A manager needs to monitor: the prices of inputs and outputs because the difference between the two is the profit margins.
The Phillips Curve shows an inverse correlation between (x) and (y) 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 trade off between inflation and unemployment? Milton Friedman and Edmund Phelps says:
Describe major takeaways briefly. This can lead to slower rates of growth. Also, there are two clear conclusions from this economic theory. First one is “The Federal Reserve cannot reduce unemployment, except temporarily”. And second is “low inflation is perferable to high inflation”. ## Business decisions and profit squeezes
prices of inputs and outputs
It’s easier to pass on costs increases when the following is true:
Describe major takeaways briefly. The Long-term contracts should often include price-adjustment clauses and Adjustment clauses should be carefully drafted to ensure that both parties benefit over the widest possible range of eventualities.
Describe major takeaways briefly. There is a tool called the Consumer Price Index or CPI for short.And with it the measures of inflation are pretty accurate, it does a good job of showing changes in the inflation rate.
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:
Explain 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.
Inflation is when the price of goods and services increase, and the price of money decreases. All over a period of time.
a mathematical equation that measures the average change in prices paid by consumers over a period of time.
It is a measure of inflation that finds the average change over time in the prices domestic producers receive for their output.
An economic theory that inflation and unemployment have a stable and inverse relationship.
It measures the percentage of potential output levels that is being achieved, and it can identify the slack in production.
Constant high inflation combined with high unemployment and stagnant demand in a country’s economy.
Describe the characteristics of the following events briefly.
The author writes the Phillips Curve broke down in the 1970s. Elaborate.
The Phillips Curve began to break down once policymakers started using it. The slow growth, high unemployment rate and high inflation (Stagflation) caused the Phillips Curve not to be reliable anymore.