What is in economics, what is Phillips curve?

Phillips curve is a macroeconomic theory introduced by William Phillips, an economist from New Zealand. Phillips studied British wage data from the late 19th and early 20th century to analyze the relationship between inflation and employment. According to the Phillips curve, there is an inverse relationship between the unemployment rate and the degree of inflation. As the unemployment rate decreases, the inflation rate increases and the inflation rate will decrease as the unemployment level increases.

In order to understand how this relationship in inflation-non-closure works, it is useful to understand some of the basic macroeconomic principles. As the unemployment rate decreases, it may be more difficult to find qualified workers. Those available will have more available options in terms of where to work. To attract workers in this type of economy, companies will have to pay higher wages, which eventually increases the price of the products they sell. Because workers earn an average more, we have more money to spendIt values, which means that many companies will be tempted to increase prices even more.

also the truth. With increasing unemployment rates, workers are willing to accept lower wages, because competition for jobs is so intense. There is no need for companies to increase product prices because so little pays for work. Consumers who earn lower wages generally have less money to spend on products. This means that many companies will reduce product prices to increase sales.

during the 1960s and early 70s. Many government agencies relied on Phillips curve in deciding on public policy. Many people believed that it was possible to maintain the unemployment rate of low implementation of measures focused on the growth of the economy. Although it would increase the inflation rate, it would also ensure that more citizens could find jobs.

by the end of 1970s, several remarkable eThe Konomas began to publicly criticize the Phillips curve. They argued that the inverse relationship between unemployment and inflation exists only in the short term and that policies aimed at reducing unemployment would only worsen future inflation. For example, workers who learn to expect an increased inflation rate will constantly demand higher and higher wages to maintain their purchasing power. This triggers a cycle of increased inflation and wages that is not sustainable and eventually leads to increased unemployment.

Today, most economists believe that the Phillips curve is only useful for a very short time. In the long run, Phillips curve is more equal to a vertical line than a curve. The long -term Phillips curve illustrates the relationship between stable inflation and natural unemployment rate. This means that any policy aimed at reducing unemployment of manipulations in the short -term horizon will be an idle. Under a modern Phillips curve can only improve productivity or technology to reduce the rate thanAmusiness without a long -term inflation rate.