expectations-augmented Phillips curve

The expectations-augmented Phillips curve describes the relationship between inflation (rising prices) and unemployment, considering how people's expectations of inflation influence this relationship. When workers expect higher future inflation, they demand higher wages, which can lead to increased prices. As a result, if unemployment is low, inflation tends to rise because businesses raise prices to cover higher wages. Conversely, if unemployment is high, inflation tends to be lower. This model emphasizes that for policymakers to effectively manage inflation and unemployment, they must account for people's inflation expectations, making the trade-off more complex than the original Phillips curve suggested.