New Keynesian Phillips Curve

The New Keynesian Phillips Curve describes the relationship between inflation (the rate at which prices increase) and factors like economic slack or unemployment, incorporating expectations of future inflation. It suggests that current inflation depends on how much the economy is operating above its normal capacity and how people expect prices to change in the future. When the economy is tight and unemployment is low, inflation tends to rise; when slack is high and unemployment is high, inflation tends to fall. It helps explain how expectations and current economic conditions influence inflation dynamics in modern monetary policy.