Phillips Curve

Sufiyan Hadi


Phillips curve mainly shows the inverse relationship between unemployment and the rates of inflation. As unemployment increases, the rate of inflation will decrease and as unemployment decreases the rate of inflation will increase. This is where the theory if stagflation was able to come out. When there was a rise in unemployment as well as inflation it was known as stagflation. Since this was not shown by the Phillips curve, there were doubts about the reality of the inverse relationship.There is a short run phillips curve and a long run phillips curve. The short run phillips curve shifts upwards when inflation rises. The long term phillips curve is that you decrease unemployment by increasing inflation.
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