The Phillips Curve
| English | Chinese | Pinyin |
|---|---|---|
| trade-off | 权衡取舍 | quán héng qǔ shě |
| Phillips curve | 菲利普斯曲线 | fēi lì pǔ sī qū xiàn |
| short-run Phillips curve | 短期菲利普斯曲线 | duǎn qī fēi lì pǔ sī qū xiàn |
| long-run Phillips curve | 长期菲利普斯曲线 | cháng qī fēi lì pǔ sī qū xiàn |
| natural rate of unemployment | 自然失业率 | zì rán shī yè lǜ |
| inflationary expectations | 通货膨胀预期 | tōng huò péng zhàng yù qī |
| supply shock | 供给冲击 | gōng jǐ chōng jī |
| stagflation | 滞胀 | zhì zhàng |
The inflation-unemployment trade-off
- The AD-AS model says a rightward AD shift raises output and prices.
- So unemployment falls while inflation rises — they move opposite.
- The Phillips curve 菲利普斯曲线 plots that same link on its own diagram.
- Inflation on the vertical axis, unemployment on the horizontal.
The short-run curve slopes down
- The short-run Phillips curve 短期菲利普斯曲线 (SRPC) slopes downward — a short-run trade-off 权衡取舍.
- Lower unemployment costs higher inflation; lower inflation costs higher unemployment.
- A move up-left along it mirrors a rightward AD shift; a move down-right mirrors a leftward AD shift.
The short-run Phillips curve slopes downward, showing:
Lower unemployment comes with higher inflation, and vice versa — a short-run trade-off.
A move up-left along the SRPC (lower unemployment, higher inflation) matches:
More spending pushes output past potential, so jobs rise and prices climb.
The long-run curve is vertical
- The long-run Phillips curve 长期菲利普斯曲线 (LRPC) is a vertical line at the natural rate of unemployment 自然失业率.
- In the long run there is no trade-off: whatever the inflation rate, unemployment returns to its natural rate.
- Once people fully expect higher inflation, wages rise, costs climb, and the jobs boost vanishes.
Move along, or shift the SRPC?
A change in AD moves you along the short-run Phillips curve; a change in inflation expectations or a supply shock shifts the whole curve.
The long-run Phillips curve is:
In the long run there is no trade-off; unemployment returns to its natural rate.
The long-run Phillips curve is vertical at the ______ rate of unemployment.
The LRPC and SRPC cross exactly at the natural rate.
What shifts the SRPC
- A change in inflationary expectations 通货膨胀预期: expecting higher inflation shifts the SRPC up.
- A supply shock 供给冲击: a negative one raises inflation and unemployment together (stagflation 滞胀), shifting the SRPC right.
- Worked idea. Printing money cuts unemployment 5% → 3% but inflation jumps 2% → 6%; then expectations catch up, the SRPC shifts up, and unemployment returns to 5% with permanently higher inflation.
If people begin to expect higher inflation, the short-run Phillips curve:
Higher expected inflation means more inflation at every unemployment rate — the SRPC shifts up.
A negative supply shock shifts the short-run Phillips curve right, worsening both inflation and unemployment.
That is stagflation — worse on both counts at once.
The short-run Phillips curve slopes down — a trade-off between inflation and unemployment, mirroring AD shifts. The long-run Phillips curve is vertical at the natural rate: no lasting trade-off. The SRPC shifts with inflationary expectations and supply shocks.