Question

Do you think the Phillips curve is a useful tool for analyzing the economy today? Why or why not

Short answer

Phillips curve seems to be too simple and this became the reason that most of the economists stopped using the Phillips curve.

But still today, there are some modified forms of the Phillips Curve present that consider the inflationary expectations into account and these modified forms are powerful.

Step-by-step solution

Concept Introduction 

The Phillips curve is a useful tool for analyzing the economy today

Graphical Representation

A Phillips curve illustrates that there is a tradeoff that exists between the rate of unemployment and the rate of inflation. In other words, if one of them is higher, the other must be lower.

The below Phillips curve indicates that, as unemployment increases from ${\mathrm{U}}_1$to ${\mathrm{U}}_2$, the rate of inflation can be obeyed to be lowered from ${\mathrm{I}}_2$to ${\mathrm{I}}_1$, and vice versa. The association was similar for other developed countries.

Philips Curve

The tradeoff that exists between the rate of unemployment and the rate of inflation seemed to rupture down during the 1970 s and this occurred when the Phillips Curve moved out to the right. Over this long period of time, the Phillips curve seems to have moved out. There is no more tradeoff staying between the two phrases namely unemployment and inflation.

It can be seen from the above Phillips curve that it appears to be too simple and this became the cause that most of the economists stopped using the Phillips curve.

But still today, there are some altered forms of the Phillips Curve present that consider the inflationary expectations into account and these altered forms are useful. The altered curves are able to distinguish between short-run effects and long-run impacts on unemployment. In current times, the low inflation rate is accompanied by a high unemployment rate, Therefore, the Phillips curve may be useful.

The "short-run Phillips curve" has the ability to move up when the expectation of inflationary beginnings rises. The "long-run Phillips curve" indicates that monetary policy cannot influence unemployment that has the capacity to adjust back to its natural level.

Step 4:Final answer

The tradeoff that exists between the rate of unemployment and the rate of inflation seemed to rupture down during the 1970 s and this occurred when the Phillips Curve moved out to the right. Over this long period of time, the Phillips curve seems to have moved out. There is no more tradeoff staying between the two phrases namely unemployment and inflation.

It can be seen from the above Phillips curve that it appears to be too simple and this became the cause that most of the economists stopped using the Phillips curve.