THE PHILLIPS CURVE (HL)
- Explain, using a diagram, how the short-run Phillips curve may shift outwards, resulting in stagflation (caused by a decrease in SRAS due to factors including supply shocks).
- Discuss, using a short-run Phillips curve diagram, the view that there is a possible trade-off between the unemployment rate and the inflation rate in the short run.
- Discuss, using a diagram, the view that there is a long-run Phillips curve that is vertical at the natural rate of unemployment, and therefore there is no trade-off between the unemployment rate and the inflation rate in the long run.
Fig. 1 The Phillips Curve
Fig. 2 The 'Original Phillips' Curve 1958