Question

What tradeoff does a Phillips curve show?

Short answer

The Phillips curve depicts an inflation-unemployment trade-off.

Step-by-step solution

Content Introduction

The Phillips curve is a dating among the fee of inflation and the fee of unemployment. According to Phillips curve, it depicts the inverse relationship between inflation and unemployment: as unemployment falls, so inflation rise. However, the connection isn't always linear. When the unemployment fee is at the x-axis and the inflation fee is at the y-axis, the short-run Phillips curve strains an L-shape.

The Phillip Curve

The Phillips curve was developed by A.W Phillips and is a concept in economics which states unemployment and inflation have a correlation.

Phillips tracked salary adjustments and unemployment adjustments in Great Britain from 1861 to 1957, and determined that there has been a stable, inverse dating among wages and unemployment. This correlation among salary adjustments and unemployment regarded to keep for Great Britain and for different commercial countries. The Phillips curve supplied capability financial coverage outcomes: financial and financial coverage might be used to reap complete employment on the price of better fee levels, or to decrease inflation on the price of decreased employment.