Friedman and Phelps Argued That It Was Dangerous to Think

question 123

Essay

Friedman and Phelps argued that it was dangerous to think of the short-run Phillips curve as a menu of options for policymakers to choose from. Explain the logic of their argument.

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Definitions:

Sunk Costs

Expenses that have already been incurred and cannot be recovered or altered by future actions or decisions.

Long-Run Decisions

Decisions in business or economics that affect operations over a longer time period, often related to investment, expansion, or strategic planning.

Short-Run Decisions

Decisions made by businesses affecting operations within a period of less than one year, often focusing on immediate operational and financial outcomes.

Opportunity Costs

The potential benefits missed out on when choosing one alternative over another.