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Neo-Keynesian Approach to Inflation: The Phillips Curve

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Neo-Keynesian Approach to Inflation: The Phillips Curve
Generally, Neo-Keynesian macroeconomics has the following four propositions.
i.Private sector is unstable ii.Money in the long run is neutral iii.There exists tradeoff between inflation and unemployment iv.Countercyclical policies are preferable to achieve the macroeconomic stability
Phillips (1958), using the data of Great Britain, innovated the Phillips curve which showed the negative relationship between rate of change in money wage and rate of change in unemployment. The original Phillips curve was just the empirical relationship, however, most influential theoretical interpretation steamed from R.G. Lipsey (1960). The Phillips curve appeared empirically plausible and verifiable explanation of continuously rising money wage, a phenomena which the classical labour market could not explain immediately.
The demand for and supply of labour schedules were assumed to be negative and positive function of money wage respectively. Presence …