Phillips Curve

Not as intimidating as it seems

What does the Phillips Curve tell us?

The Phillips Curve illustrates the relationship between the inflation rate, and the unemployment rate. It helps to show the inverse relationship between inflation and unemployment. When inflation rates are high, unemployment is low. When unemployment is low, Inflation is high.

How to Draw a Phillips Curve

  1. The best way to look at the Phillips Curve, is as a mirror of the AD/AS graph
  2. Set up an AD/AS graph with SRAS and AD, then draw another graph right next to it.
  3. Draw a negatively sloping curve on the second graph to mirror the SRAS curve in the first graph.
  4. In the first graph draw a dotted line to connect the AD and SRAS
  5. Then keep the horizontal dotted line going all the way through the Phillips Curve graph.

The History of the Phillips Curve

A.W.H. Phillips was an English economists from the late 19th century. His greatest achievement, the Phillips Curve, showed the that the relationship between inflation and unemployment rates could be graphed.