The Relationship Between Inflation And Unemployment

Phillips Curve

A concept in macroeconomics that suggests an inverse relationship between inflation and unemployment, indicating that when one is high, the other tends to be low, and vice versa.

Wage-push inflation

A phenomenon where rising wages drive up overall prices in the economy, typically occurring when labor becomes scarce and employers must compete for talent by offering higher wages.

Short-run Phillips curve

Depicts the trade-off between inflation and unemployment in the short term, allowing policymakers to use expansionary monetary or fiscal policies to stimulate economic activity and reduce unemployment, but potentially leading to higher inflation.

Long-run Phillips curve

The relationship between inflation and unemployment in the long run, which may not hold due to the presence of adaptive expectations and wage-price adjustments.

Adaptive expectations

The idea that people form their expectations of future inflation based on past experiences, influencing wage demands and potentially perpetuating inflationary pressures.

Natural rate of unemployment

The rate of unemployment consistent with non-accelerating inflation, where the economy tends to settle over time as individuals adjust their expectations and wage demands.