Phillips curve

(noun)

A graph that shows the inverse relationship between the rate of unemployment and the rate of inflation in an economy.

Related Terms

Examples of Phillips curve in the following topics:

  • The Relationship Between the Phillips Curve and AD-AD

    • Changes in aggregate demand cause movements along the Phillips curve, all other variables held constant.
    • The Phillips curve shows the inverse trade-off between rates of inflation and rates of unemployment.
    • The Phillips curve and aggregate demand share similar components.
    • These two factors are captured as equivalent movements along the Phillips curve from points A to D.
    • This illustrates an important point: changes in aggregate demand cause movements along the Phillips curve.

  • The Short-Run Phillips Curve

    • The short-run Phillips curve depicts the inverse trade-off between inflation and unemployment.
    • The Phillips curve depicts the relationship between inflation and unemployment rates.
    • However, the short-run Phillips curve is roughly L-shaped to reflect the initial inverse relationship between the two variables .
    • During the 1960's, the Phillips curve rose to prominence because it seemed to accurately depict real-world macroeconomics.
    • The short-run Phillips curve shows that in the short-term there is a tradeoff between inflation and unemployment.

  • The Phillips Curve

    • The Phillips curve relates the rate of inflation with the rate of unemployment.
    • The early idea for the Phillips curve was proposed in 1958 by economist A.W.
    • The theory of the Phillips curve seemed stable and predictable.
    • They do not form the classic L-shape the short-run Phillips curve would predict.
    • Review the historical evidence regarding the theory of the Phillips curve

  • Shifting the Phillips Curve with a Supply Shock

    • The Phillips curve shows the relationship between inflation and unemployment.
    • In the 1960's, economists believed that the short-run Phillips curve was stable.
    • By the 1970's, economic events dashed the idea of a predictable Phillips curve.
    • Consequently, the Phillips curve could not model this situation.
    • Give examples of aggregate supply shock that shift the Phillips curve

  • The Long-Run Phillips Curve

    • The Phillips curve shows the trade-off between inflation and unemployment, but how accurate is this relationship in the long run?
    • To get a better sense of the long-run Phillips curve, consider the example shown in .
    • This is shown as a movement along the short-run Phillips curve, to point B, which is an unstable equilibrium.
    • The reason the short-run Phillips curve shifts is due to the changes in inflation expectations.
    • Examine the NAIRU and its relationship to the long term Phillips curve

  • Disinflation

    • The Phillips curve can illustrate this last point more closely.
    • Consider an economy initially at point A on the long-run Phillips curve in .
    • The expected rate of inflation has also decreased due to different inflation expectations, resulting in a shift of the short-run Phillips curve.
    • Disinflation can be illustrated as movements along the short-run and long-run Phillips curves.

  • Relationship Between Expectations and Inflation

    • The short-run Phillips curve is said to shift because of workers' future inflation expectations.
    • To connect this to the Phillips curve, consider .
    • As an example of how this applies to the Phillips curve, consider again.

  • Alternative Views

    • Phillips Curve: Another important model following Keynes's publications is the Phillips Curve, put forward by William Phillips in 1958.

  • Demand Schedules and Demand Curves

    • A demand curve depicts the price and quantity combinations listed in a demand schedule.
    • The curve can be derived from a demand schedule, which is essentially a table view of the price and quantity pairings that comprise the demand curve.
    • The demand curve of an individual agent can be combined with that of other economic agents to depict a market or aggregate demand curve.
    • In this manner, the demand curve for all consumers together follows from the demand curve of every individual consumer.
    • The demand curve in combination with the supply curve provides the market clearing or equilibrium price and quantity relationship.

  • The Supply Curve in Perfect Competition

    • In economics, a cost curve is a graph that shows the costs of production as a function of total quantity produced.
    • In a free market economy, firms use cost curves to find the optimal point of production (minimizing cost).
    • The various types of cost curves include total, average, marginal curves.
    • Some of the cost curves analyze the short run, while others focus on the long run.
    • When a table of costs and revenues is available, a firm can plot the data onto a profit curve.