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What is the Phillips curve?

Posted on April 14, 2014 at 5:40 PM

The short-run Phillips curve is a downward sloping curve that shows the inverse relationship between inflation and unemployment. Inflation is on the Y-axis and unemployment is on the X-axis. When aggregate demand shifts to the right, inflation increases and unemployment falls. This means that the economy moves point-to-point leftward along the short-run Phillips curve.

In the long run, there is no tradeoff between inflation and unemployment. The long-run Phillips curve is vertical at the natural rate of unemployment (or the NAIRU).

AP Macroeconomics Unit 5 Macroeconomic Theory

Categories: AP Macroeconomics, Macro Unit 5 Macroeconomic Theory

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