Phillip's curve

• Phillips Curve
• There is an inverse relationship between inflation and unemployment. Each point on the Phillip's Curve corresponds to a different level of output.
• Long Run
• Occurs at the natural rate of unemployment.
• It is represented by a vertical line.
• LRPC
• Long Run Phillips Curve will only shift if the LRAS shifts.
• Unemployment
• NRU is equal to frictional, seasonal, and structural unemployment.
• Short Run
• Since wages are sticky, inflation changes move the point on the SRPC.
• If inflation persists, then the entire SRPC moves up.
• Stagflation
• Unemployment and inflation simultaneously rise.
• Supply Shocks
• Rapid and significant increases in resource cost.
• If inflation expectations drop due to new technology or efficiency, then the SRPC will move downward.
• Misery Index
• Combination of inflation and unemployment in any given year.