Phillips Curve

Definition

The Phillips Curve shows the inverse relationship between unemployment rate and inflation rate. It suggests that as unemployment decreases, inflation tends to increase (and vice versa).

Related terms

Stagflation: A situation where an economy experiences both high inflation and high unemployment simultaneously.

Natural Rate of Unemployment: The level of unemployment that exists when an economy is operating at its potential output.

Demand-Pull Inflation: A type of inflation caused by excessive aggregate demand in relation to available supply.