A manager needs to monitor: The prices of your inputs and the prices of your outputs since the difference between the two is the profit margin.
The Phillips Curve shows an inverse correlation between (unemployment) and (inflation) 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:
In the long run, (No trade off between unemployment and inflation) In the short run, (Trade off between unemployment and unanticipated inflation, federal reserve reduces unemployment by surprising the people with unanticipated inflation)
Describe major takeaways briefly. There is long term cost to high inflation, high inflation rates leads to volatile inflation rates which makes it harder for business planning based on trends. Banks are hesitant to lend out money fearing what inflation will be after a length of time. Just as business owners and factories don’t know what to sell products at due to changing inflation. When inflation is unstable, the growth that could occur is not as fast.
prices of inputs and outputs
It’s easier to pass on costs increases when the following is true:
Describe major takeaways briefly. A long term contract for harvesting energy or larger things paid overtime usually include an extra percentage based upon the inflation rates, while product prices may increase or decrease depending on the inflation where a contract is not signed. A business and a consumer will reach this agreement to protect the business and make sure they have the money back, while also reducing the risk for the consumer.
Describe major takeaways briefly. The CPI os not always completely accurate but the picture shown is always similarly relative to the change in inflation. They post a range of numbers like 2-5% change in order for business owners to assess and change prices or figure something else while also informing a consumer if they should buy that new freezer or to wait on it due to inflation.
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.
Describe the characteristics of the following events briefly.
The author writes the Phillips Curve broke down in the 1970s. Elaborate. The Phillips curve states that inflation and unemployment have an inverse relationship. Higher inflation is associated with lower unemployment and vice versa. The Phillips curve was a concept used to guide macroeconomic policy in the 20th century, but was called into question by the stagflation of the 1970’s.