Macroeconomics monetary policy/Macroeconomic issues

The Philips Curve

The Phillips curve demonstrates that there is a trade-off between inflation and unemployment. According to the curve, when inflation is higher than expected, people will work at a lower real wage. Employers will in turn hire more workers at the lower real wage, increasing output and reducing unemployment. In the 1970s and 1980s, when both inflation and unemployment were continually rising - a phenomenon known as stagflation - many economists questioned the soundness of the Phillips curve.

Start by watching the video below:

Video by Kahn Academy

Next, read this chapter Principles of Macroeconomics: "Chapter 16, Section 3: Inflation and Unemployment in the Long Run" about the Phillips curve, a short-run trade off between inflation and unemployment. Remember to do the "Try It" section at the end.

Now go to the course forum and write down your thoughts on the Philips Curve. Do you think it explains the connection between inflation and umemployment? Principles of Macroeconomics/MAEC103 WEnotes