This video lesson introduces a basic Macroeconomic model showing the short-run tradeoff that exists between inflation and unemployment in nation’s economy. By examining the effect that a shift in Aggregate Demand has on the average price level and the level of output and employment, we observe a simple tradeoff: lower unemployment generally comes at the cost of higher inflation, while lower inflation may require higher unemployment.
The following blog posts provide some real world applications of the Phillips Curve theory:
- Facts and the Phillips Curve: new evidence of the short-run trade-off between unemployment and inflation
- The Federal Reserve and the tradeoff between unemployment and inflation
- Politics, priorities, and the Phillips Curve