Sunday, March 01, 2009
Does the Phillips Curve partly explain why Aggregate Demand is downward sloping? I think the data suggests that this relation still holds. With data on the inflation rate and unemployment, I plotted a scatter graph then used a TI-83 graphing calculator to find a linear regression formula. The TI-83 exaggerates the slope but shows that when there is a change in the inflation rate, there is a change in the unemployment rate as well. The change is less than 1, (a = -.397).
For those interested in data, the Phillips Curve combined with Okun's Law and money growth give empirical proof that AD is downward sloping.