The Phillips Curve

By Cayli Cheeks

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  • Developed by New Zealand economist A.W. Phillips in 1958
  • Demonstrates the stable and inverse relationship between the rate of inflation and the rate of unemployment
  • States that economic growth causes inflation, which should lead to more jobs and less unemployment
  • Has been somewhat disproven due to the phenomenon of stagflation that occurred in the 1970s

Short Run v. Long Run Phillips Curve

Short Run

  • L- Shaped
  • Demonstrates the inverse relationship between unemployment and inflation

Long Run

  • Graph is vertical at the natural rate of employment
  • No trade-off between inflation and unemployment in the long run, only in the short run

The Phillips Curve - 60 Second Adventures in Economics (3/6)