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Phillips Curve

AnalyticsTrade Team
AnalyticsTrade Team Last updated on 26 Apr 2023

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Phillips Curve

The Phillips Curve is an economic concept that describes the relationship between inflation and unemployment. It was first proposed by economist A.W. Phillips in 1958 and has since become an important tool for economists and policy makers. The Phillips Curve suggests that when unemployment is low, inflation tends to be higher, and when unemployment is high, inflation tends to be lower. This relationship is not always linear, however, and can vary depending on economic conditions.

History of the Phillips Curve

The Phillips 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. This relationship was later extended to other countries and became known as the Phillips Curve.

Since its introduction, the Phillips Curve has been used to explain the relationship between inflation and unemployment in many countries. It has also been used to explain the effects of monetary and fiscal policy on inflation and unemployment. In the 1970s, however, the Phillips Curve was challenged by economists who argued that it did not accurately reflect the relationship between inflation and unemployment.

Table of Comparisons

Unemployment Rate Inflation Rate
4% 2.5%
6% 1.5%
8% 0.5%

Summary

The Phillips Curve is an economic concept that describes the relationship between inflation and unemployment. It suggests that when unemployment is low, inflation tends to be higher, and when unemployment is high, inflation tends to be lower. The Phillips Curve has been used to explain the effects of monetary and fiscal policy on inflation and unemployment, but it has also been challenged by economists who argue that it does not accurately reflect the relationship between inflation and unemployment. For more information on the Phillips Curve, visit websites such as the Federal Reserve Bank of St. Louis or the Bank of England.

See Also

  • Monetary Policy
  • Fiscal Policy
  • Inflation
  • Unemployment
  • Aggregate Demand
  • Aggregate Supply
  • GDP
  • Interest Rates
  • Exchange Rates
  • Economic Growth

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