Phillips curve

Phillips Curve

• Inverse relationship between inflation and unemployment
• trade off
• Each point of the Phillips curve corresponds to a different level of output

Long run Phillip curve

• occurs at natural rate of unemployment
• is represented by a vertical line
• no trade of between unemployment and inflation
• due to economy producing at full employment level
• only shift if LRAS shifts 
• NRU is equal to
• frictional, seasonal, and structural unemployment 

Short Run

• since wages are sticky inflation changes wages moves the point on the LRPC
• If inflation persist and expected rate of inflation rises then the entire SRPG moves upward
• Stagflation- unemployment and inflation simultaneously rises 
• Supply shock- rapid and significant increases in resource cost
• If inflation expectations drop due to new tech or efficiency then SRPC will move downward
• Misery index- combination of unemployment and inflation in any given year
• single digit misery is good

Long run extra

• increase in Un will shift LRPC right
• decrease in Un will shift LRPC left