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  • Philips Curve

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    Sohail Ahmad
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    An economist in the 1950s proposed that there was an inverse relationship between inflation and unemployment based on UK data from 1861-1957, where lower unemployment was associated with higher inflation. This relationship, known as the Phillips curve, seemed to hold in the 1950s-1960s but then broke down. Now economists discuss the NAIRU, or non-accelerating inflation rate of unemployment, which is the lowest unemployment rate that avoids rising inflation.

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    An economist in the 1950s proposed that there was an inverse relationship between inflation and unemployment based on UK data from 1861-1957, where lower unemployment was associated with higher inflation. This relationship, known as the Phillips curve, seemed to hold in the 1950s-1960s but then broke down. Now economists discuss the NAIRU, or non-accelerating inflation rate of unemployment, which is the lowest unemployment rate that avoids rising inflation.

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    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
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    21 views1 page

    Philips Curve

    Uploaded by

    Sohail Ahmad
    An economist in the 1950s proposed that there was an inverse relationship between inflation and unemployment based on UK data from 1861-1957, where lower unemployment was associated with higher inflation. This relationship, known as the Phillips curve, seemed to hold in the 1950s-1960s but then broke down. Now economists discuss the NAIRU, or non-accelerating inflation rate of unemployment, which is the lowest unemployment rate that avoids rising inflation.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 1

    In 1958, an economist from New Zealand, A.W.H.

    Phillips (1914–75), proposed that there was a


    trade-off between INFLATION and UNEMPLOYMENT: the lower the unemployment rate, the
    higher was the rate of inflation. Governments simply had to choose the right balance between the
    two evils. He drew this conclusion by studying nominal wage rates and jobless rates in the UK
    between 1861 and 1957, which seemed to show the relationship of unemployment and inflation
    as a smooth curve.

    Economies did seem to work like this in the 1950s and 1960s, but then the relationship broke
    down. Now economists prefer to talk about the NAIRU, the lowest rate of unemployment at
    which inflation does not accelerate.

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