The Phillips Curve
Originally this showed the relationship between Money Wages and Unemployment,
More commonly it is used for the relationship between Inflation and Unemployment.
Diagram of Phillips Curve
· Keynesians argue that as Output rises Unemployment falls, but there is a trade off of higher inflation.
· As AD falls unemployment will rise but inflation will fall
· As Output increases there is an increase in demand for labour, therefore unemployment falls. However the increase in the price level indicates there has been a rise in inflation
· Keynesians argue that the evidence of the 1950s and 1960s suggest that there was a trade off between unemployment and inflation.
Related
Revision Notes on Unemployment
Which is Correct? - Monetarist or Keynesian View
Unemployment Essays
- Explain what is meant by Natural Rate of Unemployment?
- What Can Cause Natural Rate of Unemployment to Change over time?
- Should the Main Macro Economic Aim of the Government be Full Employment?
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