Chapter 23
Inflation and Unemployment
By Boundless
![Thumbnail](../../../../../figures.boundless-cdn.com/20829/square/philips-curve.jpg)
The Phillips curve shows the inverse relationship between inflation and unemployment: as unemployment decreases, inflation increases.
![Thumbnail](../../../../../figures.boundless-cdn.com/21256/square/12-02-20at-203.00.41-20pm.jpg)
Changes in aggregate demand cause movements along the Phillips curve, all other variables held constant.
![Thumbnail](../../../../../figures.boundless-cdn.com/20892/raw/nairu-sr-and-lr.jpg)
The long-run Phillips curve is a vertical line at the natural rate of unemployment, so inflation and unemployment are unrelated in the long run.
![Thumbnail](../../../../../figures.boundless-cdn.com/32289/square/qnuxp5twrgy6uebzhqxk.jpg)
The short-run Phillips curve depicts the inverse trade-off between inflation and unemployment.
![Thumbnail](../../../../../figures.boundless-cdn.com/20917/square/lrpc.jpg)
There are two theories of expectations (adaptive or rational) that predict how people will react to inflation.
![Thumbnail](../../../../../figures.boundless-cdn.com/20971/square/economics-supply-shock.jpg)
Aggregate supply shocks, such as increases in the costs of resources, can cause the Phillips curve to shift.
![Thumbnail](../../../../../figures.boundless-cdn.com/20975/square/hillipscurve-disinflation2.jpg)
Disinflation is a decline in the rate of inflation, and can be caused by declines in the money supply or recessions in the business cycle.