Short there is an increased aggregate demand

Short run

           

            Unlike
the long run, the short run Philips Curve is shaped like an L. As we can
observe the short run has many more variables than the long run which is
represented by a vertical line. This is one of the many examples that shows
that the short run is more precise.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

            The
Philips Curve says that in theory when the unemployment rises the inflation has
a fall and the other way around, but unlike the long run, in the short run
there exists a more clearer trade-off point because companies employ more
people therefore the employment falls, but then the wages rise because workers
are demanding therefore inflation rises.

            Monetarists
do believe that the long run is less elastic than the short one because when
more people are employed there is an increased aggregate demand and therefore
they demand higher nominal wages. Once they do get the nominal wages they
believe that the money that will be received will be more therefore it will put
in more labor hours. When they realize that their wages haven’t changed statistically
due to the inflation, the willingness of spending extra hours vanishes
therefore returning the output to its original form.

            For
instance in the United States between 1979 and 1983 we can observe a fall from
15% to 2.5% in the inflation and the unemployment rose from 5% to 11% meaning
that the Philips’ research along side with Samuelson’s and Solow’s were right
and have been used and this is just one particular example for when the short
run has been used.