Basic information on the Short Run Phillips Curve

1. Aquinas College Economics Department
The Phillips Curve
The Inflation – Unemployment
Trade off

2. Aquinas College Economics Department
Background
Prof Phillips showed using data that
illustrated a short run trade off between
inflation and unemployment
Falling unemployment will cause inflation
to rise
As more people get jobs the more the earn,
the more they spend which increased AD
which is then inflationary

3. Aquinas College Economics Department
The Curve
Unemployment
Inflation

4. Aquinas College Economics Department
However!
During the 1970s inflation and
unemployment remained high together
This is known as stagflation
The Philips curve theory now needed to be
redrawn
Economists accepted that Short Run Philips
Curve exists but a LR curve should be
drawn vertically