what is the phillips curve 
the phillips curve is an economic theory that inflation and unemployment have a stable and inverse relationship developed by william phillips it claims that with economic growth comes inflation which in turn should lead to more jobs and less unemployment the original concept of the phillips curve has been somewhat disproven due to the occurrence of stagflation in the 1970s when there were high levels of both inflation and unemployment 12understanding the phillips curvethe concept behind the phillips curve states the change in unemployment within an economy has a predictable effect on price inflation the inverse relationship between unemployment and inflation is depicted as a downward sloping convex curve with inflation on the y axis and unemployment on the x axis increasing inflation decreases unemployment and vice versa alternatively a focus on decreasing unemployment also increases inflation and vice versa 3the belief in the 1960s was that any fiscal stimulus would increase aggregate demand and initiate the following effects labor demand increases the pool of unemployed workers subsequently decreases and companies increase wages to compete and attract a smaller talent pool the corporate cost of wages then increases and companies pass along those costs to consumers in the form of price increases this belief system caused many governments to adopt a stop go strategy where a target rate of inflation was established and fiscal and monetary policies were used to expand or contract the economy to achieve the target rate however the stable trade off between inflation and unemployment broke down in the 1970s with the rise of stagflation calling into question the validity of the phillips curve 12the phillips curve and stagflationstagflation occurs when an economy experiences stagnant economic growth high unemployment and high price inflation this scenario of course directly contradicts the theory behind the phillips curve the united states never experienced stagflation until the 1970s when rising unemployment did not coincide with declining inflation 4 between 1973 and 1975 the u s economy posted six consecutive quarters of declining gdp and at the same time tripled its inflation 5expectations and the long run phillips curvethe phenomenon of stagflation and the break down in the phillips curve led economists to look more deeply at the role of expectations in the relationship between unemployment and inflation because workers and consumers can adapt their expectations about future inflation rates based on current rates of inflation and unemployment the inverse relationship between inflation and unemployment could only hold over the short run 2