Phillips Curve

The Phillips Curve illustrates the relationship between inflation (rising prices) and unemployment (the percentage of people jobless). It suggests that when unemployment is low, inflation tends to rise because employers raise wages and prices to attract workers. Conversely, higher unemployment often coincides with lower inflation since there’s less pressure to increase wages. While this relationship exists historically, it can vary over time and isn't always perfectly predictable. Economists use it to understand trade-offs policymakers face when trying to control inflation and employment levels.