The Phillips Curve
What Is It?
Phillips Curve - Long Run
The Phillips Curve In 60 Seconds
Shifts in the Phillips Curve
AD increases and there's no change in AS. This leads to increase in inflation and employment (thus decreasing unemployment). The corresponding movements on the Phillips curve would be up and to the left along the short run curve.
Long Run Shift Example:
The economy is producing at full employment and there's an increase in AD. In the short run this leads to increased inflation and employment (as mentioned above). Because of this, over time, workers will begin to demand higher nominal wages. This requires firms to reduce employment and raise prices (a leftward shift of the SRAS). Though, with the passage of time, output (and unemployment) will return to its full employment level with inflation being higher than before. This represents the only shift in LRPC, as unemployment will always go back to its natural rate.