The Phillips Curve

The Phillips Curve is an economic concept that illustrates the relationship between inflation and unemployment. It suggests that when unemployment is low, inflation tends to rise because more people are working and spending, driving up prices. Conversely, when unemployment is high, inflation tends to decrease as people spend less. This trade-off implies that policymakers might face a difficult choice: reducing unemployment could lead to higher inflation, while controlling inflation might increase unemployment. However, this relationship can vary over time and is influenced by factors like expectations and government policies.