The Phillips Curve

SRPC

• There is a trade off between inflation and unemployment
• Inverse relationship one increase others decrease
• Since wages are sticky inflation changes, moves the SRPC. (Short run Phillips curve)
• If inflation persist and the expected inflation rate increase then the entire SRPC moves upward
• Stagflation - unemployment and inflation spontaneously rise
• Supply shocks - rapid and significant increase in resource cost. Cost SRAS curve to shift
• If inflation expectations drop due to new tech or efficiency then the SRPC moves down

LRPC

• Occurs at the natural rate of unemployment. It is represented by a vertical line. There is no trade off between unemployment and long run.
• Because the economy produces at the full employment output level
• If the natural rate of unemployment (NRU) changes the LRPC moves

NRU

• 3 types of unemployment
• Frictional
• Structional
• Seasonal

LRPC

• Increase in Un will shift LRPC to the right 
• Decrease in Un will shift LRPC tot he left
• Misery Index - combination of inflation and unemployment in any given year. Single diget misery is good.