Phillips Curve and Stabilization Policy Glossary

A theory that people form their expectations of future inflation based on past inflation rates, adjusting gradually over time.

The decrease in private sector investment that occurs when government borrowing raises interest rates in the loanable funds market.

The ratio of a country national debt to its gross domestic product, used as a measure of fiscal sustainability.

A decrease in the rate of inflation (prices still rising, but more slowly). Distinct from deflation.

The rate of inflation that economic agents anticipate in the future, which determines the position of the SRPC.

A vertical line at the natural rate of unemployment, showing no long-run tradeoff between inflation and unemployment.

The unemployment rate at full employment, consisting of frictional and structural unemployment with zero cyclical unemployment.

The level of real GDP an economy can produce when operating at full employment. Represented by the LRAS curve.

A theory that people form expectations using all available information, making systematic forecast errors unlikely.

The cumulative percentage of real GDP that must be forgone to reduce inflation by one percentage point.

A curve showing the inverse relationship between inflation and unemployment in the short run, with inflation expectations held constant.

A macroeconomic condition of simultaneously rising inflation and rising unemployment, often caused by negative supply shocks.

Government policies aimed at increasing aggregate supply and potential output, such as investment in education, infrastructure, and deregulation.