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This diagram illustrates the short-run and long-run Phillips Curve, showing the relationship between inflation and unemployment.
SRPC1: Initial short-run Phillips Curve showing inverse inflation-unemployment trade-off.
SRPC2: New short-run Phillips Curve after expectations adjust (e.g., following disinflation policies).
LRPC: Long-run Phillips Curve — vertical at the natural rate of unemployment (NRU).
NRU: Natural Rate of Unemployment — the unemployment level where inflation is stable.
The short-run Phillips Curve (SRPC) shows an inverse relationship between inflation and unemployment — lower unemployment can be achieved at the cost of higher inflation, and vice versa.
SRPC1 represents the initial trade-off, while SRPC2 shows the effect of lower inflation expectations due to successful disinflation policies.
The Long-Run Phillips Curve (LRPC) is vertical at the natural rate of unemployment (NRU), indicating that in the long run, there's no trade-off between inflation and unemployment.
Attempts to maintain unemployment below the NRU will lead only to accelerating inflation without reducing unemployment in the long term.
This framework supports monetarist views that inflation is primarily a monetary phenomenon and long-term policy should aim to reduce inflation expectations.
Explore other diagrams from the same unit to deepen your understanding
A diagram illustrating the fluctuations in real GDP over time, including periods of boom, recession, peak, and trough, relative to the long-term trend of economic growth.
This diagram shows the intersection of the aggregate demand (AD) and short-run aggregate supply (AS) curves to determine the equilibrium price level and real GDP.
A diagram showing the Classical model of aggregate demand (AD), short-run aggregate supply (SRAS), and long-run aggregate supply (LRAS), used to explain long-run macroeconomic equilibrium.
A Keynesian aggregate demand and long-run aggregate supply (AD–LRAS) diagram showing how real GDP and the price level interact across different phases of the economy, including spare capacity and full employment.
A diagram showing an output (deflationary) gap, where the economy is producing below its full employment level of output (Ye).
A macroeconomic PPC diagram illustrating the trade-off between producing consumer goods and capital goods, highlighting opportunity cost and future growth implications.
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