- The Phillips Curve represents a trade-off between inflation and unemployment.
- Inverse Relationship
- Inflation Up, Unemployment Down
- Each point on the Phillips Curve corresponds to a different level of output.
The Long Run Phillips Curve
- Occurs at the natural rate of unemployment
- Represented by a vertical line
- No trade-off between inflation and unemployment
- Economy produces at the full employment output level
- The LRPC will only shift if the LRAS curve shifts
- Increases in unemployment LRPC ---->
- Decreases in unemployment LRPC <---
- Structural changes in the economy that affect unemployment will also cause the LRPC to shift
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