Phillips Curve

• Philips Curve - Shows the relationship between unemployment and inflation

• Long Run Philips Curve - Occurs at natural rate of unemployment
1. Represented by vertical line

1. There is no trade-off between unemployment and inflation in the long run (economy produces at full employment level
2. LRPC will only shift if LRAS curve shifts
3. LRAS shifts when technology and economic growth (same thing as outward PPC curve)
4. Cyclical does not happen during full employment 
5. The major LRPC assumption is that more worker benefits create higher natural rates and fewer worker benefits create lower natural rates
6. There is trade off between inflation and unemployment that only occurs in the short run
7. Inflation and unemployment are inverse
8. SRPC has relevance to Okun's Law
9. Since wages are sticky, inflation changes move the points on the SRPC
10. If inflation persists and the expected rate of inflation rises, then the entire SRPC moves upward which causes a situation called stagflation
11. If inflation expectations drop due to new tech or economic growth, then SRPC moves downward
12. Shift in PC is caused by determinants of AS
13. If it is AD it moves ALONG the curve
14. AS shocks cause both rate of inflation and rate of unemployment to increase
15. Supply shocks are a rapid and significant increase in resource cos
16. Misery index is a combo of inflation and unemployment in any given year. Single digit misery is good
17. .

The Long-Run Phillips Curve (LRPC)

• Because the LRPC exists at the natural rate of unemployment (Un), structural changes in the economy that affect Un will also cause LPRC to shift
1. Increase in Un shifts LPRC right
2. Vice versa