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Philips Curve

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AnalyticsTrade Team Last updated on 26 Apr 2023

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Philips Curve

The Philips Curve is an economic concept that shows the relationship between unemployment and inflation. It was first proposed by A.W. Phillips in 1958 and is used to explain the short-term trade-off between inflation and unemployment. The Philips Curve suggests that when unemployment is low, inflation tends to be high, and when unemployment is high, inflation tends to be low. This relationship is not always true, however, and the Philips Curve has been subject to debate and criticism since its introduction.

History of the Philips Curve

The Philips Curve was first proposed by A.W. Phillips in 1958 in a paper titled β€œThe Relationship between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957”. In this paper, Phillips showed that there was an inverse relationship between unemployment and wage inflation in the UK over the preceding century. This relationship was later extended to include the relationship between unemployment and price inflation, and the Philips Curve was born.

Since its introduction, the Philips Curve has been subject to debate and criticism. Some economists argue that the relationship between unemployment and inflation is not always true, and that the Philips Curve does not accurately reflect the current economic environment. Others argue that the Philips Curve is still a useful tool for understanding the relationship between unemployment and inflation.

Table of Comparisons

Unemployment Rate Inflation Rate
4% 2%
6% 1%
8% 0%

Summary

The Philips Curve is an economic concept that shows the relationship between unemployment and inflation. It suggests that when unemployment is low, inflation tends to be high, and when unemployment is high, inflation tends to be low. The Philips Curve has been subject to debate and criticism since its introduction, and some economists argue that the relationship between unemployment and inflation is not always true. For more information about the Philips Curve, visit websites such as Investopedia, The Balance, and the Federal Reserve Bank of St. Louis.

See Also

  • Monetary Policy
  • Fiscal Policy
  • Aggregate Demand
  • Aggregate Supply
  • Inflation Targeting
  • GDP Deflator
  • Cost-Push Inflation
  • Demand-Pull Inflation
  • Stagflation
  • Hyperinflation

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