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Phillips curve (view source)

Revision as of 04:54, January 9, 2007

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The Phillips curve is a model for unemployment whereby increasing inflation supposedly reduces unemployment. The model of an inverse relation between the two is plotted with inflation on the y-axis and unemployment on the x-axis.

Liberal (Keynesian) economists promoted the Phillips curve as a way of justifying increased inflation, or more money printed by the government. Milton Friedman, a critic of Keynesian economics, rejected this model. He persuasively argued that only when inflation exceeded expectations might it help reduce inflation.

Even liberals abandoned the Phillips curve by the late 1970s, when inflation and unemployment were very high at the same time in the United States.

Here is an algebraic formulation of the Phillips curve:

:<math> \Pi = \Pi_e - b(U-U_n) + v \,</math>

Plotting the inflation rate '''Π''' against unemployment '''''U''''' provides a downward-sloping Phillips curve.
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