What is the Phillips curve? Draw a graph of a short-run Phillips curve.
.The Phillips curve is developed by A.W.Phillips. A.W. Phillips was the first economist to show that there is usually an inverse relationship between unemployment and inflation.
He authored a paper in 1958 titled "The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957".This was first published in a journal.
This curve shows the short run relationship between the unemployment rate and the inflation rate.Here the inflation rate is plotted in the y axis and the unemployment rate is plotted on the x axis.
If the aggregate demand decreases the unemployment will rise and inflation falls whereas when aggregate demand increases and the unemployment falls and inflation rises.Which results in a short run trade off between unemployment and inflation. Higher unemployment will be followed by lower inflation and lower unemployment accompanied by higher inflation.
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