Traditional Phillips Curve
Economics notes
Traditional Phillips Curve
➡️ The traditional Phillips curve is an economic concept that states that there is an inverse relationship between inflation and unemployment.
➡️ The curve suggests that when unemployment is low, inflation increases, and when unemployment is high, inflation decreases.
➡️ The traditional Phillips curve has been challenged by economists in recent years, as it does not always accurately predict the relationship between inflation and unemployment.
What is the traditional Phillips curve?
The traditional Phillips curve is an economic model that describes the relationship between inflation and unemployment. It states that when unemployment is low, inflation tends to be high, and when unemployment is high, inflation tends to be low.
How does the traditional Phillips curve work?
The traditional Phillips curve works by showing the inverse relationship between inflation and unemployment. When unemployment is low, businesses have more customers and can raise prices, leading to higher inflation. When unemployment is high, businesses have fewer customers and must lower prices, leading to lower inflation.
What are the implications of the traditional Phillips curve?
The traditional Phillips curve has important implications for economic policy. It suggests that policymakers can use fiscal and monetary policy to influence inflation and unemployment. For example, if policymakers want to reduce unemployment, they can use expansionary fiscal and monetary policy to stimulate the economy and create jobs.