5.2 The Phillips Curve
The short-run Phillips curve shows an inverse tradeoff between inflation and unemployment; the long-run curve is vertical at the natural rate.
The short-run Phillips curve (SRPC) slopes downward: when AD rises, output expands, unemployment falls, and inflation rises, you slide up and left along the curve. Every point on the SRPC corresponds to a short-run equilibrium in the AD-AS model.
The mapping rule earns points: an AD shift is a movement ALONG the SRPC; an SRAS shift moves the SRPC itself. An adverse supply shock shifts SRAS left and the SRPC right, inflation and unemployment rise together, which is stagflation. Changed inflation expectations also shift the SRPC.
The long-run Phillips curve (LRPC) is vertical at the natural rate of unemployment: there is no long-run tradeoff. Persistent expansionary policy raises expected inflation, shifting the SRPC up until unemployment returns to the natural rate with permanently higher inflation.
Key terms for 5.2
Drag the curves above, or open the full Phillips Curve sandbox. Then draw it yourself for a graded check or watch the step-by-step walkthrough. Teaching this? Put this graph on your own class page, free.
Shifting the SRPC when aggregate demand changes. A demand shift is a movement ALONG the short-run Phillips curve; only supply shocks or changed inflation expectations shift the curve itself.
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