AP MacroeconomicsFinancial Sector & Loanable Funds
Phillips Curve
The Phillips curve shows the short-run inverse relationship between the inflation rate and the unemployment rate.
In the short run, lower unemployment tends to come with higher inflation, giving policymakers a trade-off. The long-run Phillips curve is vertical at the natural rate of unemployment, so there is no permanent trade-off—pushing unemployment below the natural rate only raises inflation. It is the inflation–unemployment counterpart of the AD-AS model.
Formula / Example
Short-run: inflation ↑ ⇒ unemployment ↓. Long-run Phillips curve is vertical at the natural rate of unemployment (NRU).
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Phillips Curve →
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Study module
Unemployment & Inflation →
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