The Phillips Curve

• The Phillips curve demonstrates the inverse

relationship between rates of unemployment and
the inflation rate
What is the Phillips Curve

• The Phillips Curve is an economic concept developed by Alban William Phillips.

• The theory claims that with economic growth, more jobs and less unemployment there comes inflation.

• The Phillips Curve is a graph that shows the inverse relationship between inflation and unemployment: as
unemployment decreases, inflation increases.

• Efforts by the government to reduce unemployment were likely to result in increased inflation.
What is the Phillips Curve (Continued)

• Graphically, the short run Phillips Curve is an L-shape concave curve, when unemployment rate is on x-axis and
the inflation rate is on the y-axis.

• The figure shows the inverse relationship between inflation and unemployment. As one increases, the other must
decrease.

• In this figure, an economy can either experience 3% (low) unemployment at the cost of 6% of (high) inflation or
(high) unemployment of 5% to bring down the inflation levels to 2% (low).
TO SUM UP 1. Low
Unemploymen
t
2. Workers have
8. High MORE OPTIONS/
Inflation LEVERAGE

7. Prices of Goods 3. Employers

& Services RAISE WAGES to
Increases Retain employees

6. Increase In the 4. Increase in

Cost Of Factors Of BUYING
Production POWER
5. Demand
Increases