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TheShort-RunTrade-off
betweenInflationand
Unemployment35
ThePhillipsCurvePhillipscurveShowstheshort-runtrade-offBetweeninflationandunemploymentOriginsofthePhillipscurve1958,economistA.W.Phillips“TherelationshipbetweenunemploymentandtherateofchangeofmoneywagesintheUnitedKingdom,1861–1957”Negativecorrelationbetweentherateofunemploymentandtherateofinflation2
ThePhillipsCurveOriginsofthePhillipscurve1960,economistsPaulSamuelsonRobertSolow“Analyticsofanti-inflationpolicy”NegativecorrelationbetweentherateofunemploymentandtherateofinflationPolicymakers:MonetaryandfiscalpolicyToinfluenceaggregatedemandChooseanypointonPhillipscurveTrade-off:HighunemploymentandlowinflationOrlowunemploymentandhighinflation3
ThePhillipsCurve14InflationRate(percentperyear)UnemploymentRate(percent)6PhillipscurveThePhillipscurveillustratesanegativeassociationbetweentheinflationrateandtheunemploymentrate.AtpointA,inflationislowandunemploymentishigh.AtpointB,inflationishighandunemploymentislow.27A4%B
ThePhillipsCurveAggregatedemand(AD),aggregatesupply(AS),andthePhillipscurvePhillipscurveCombinationsofinflationandunemploymentThatariseintheshortrunAsshiftsintheaggregate-demandcurveMovetheeconomyalongtheshort-runaggregate-supplycurve5
ThePhillipsCurveAD,AS,andthePhillipscurveHigheraggregate-demandHigheroutputHigherpricelevelLowerunemploymentHigherinflationLoweraggregate-demandLoweroutputLowerpricelevelHigherunemploymentLowerinflation6
HowthePhillipscurveisrelatedtothemodelofaggregatedemandandaggregatesupply27PricelevelThisfigureassumespricelevelof100foryear2020andchartspossibleesfortheyear2021.Panel(a)showsthemodelofaggregatedemandaggregatesupply.IfADislow,theeconomyisatpointA;outputislow(15,000),andthepricelevelislow(102).IfADishigh,theecon
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