The Relationship Between Inflation and Unemployement with the Long-run Phillips Curve

Long-term Phillips curve (LRPC) The long-term Phillips curve, LRPC, shows the relationship between the inflation rate and the unemployment rate when the actual inflation rate is equal to the expected inflation rate. If the unemployment rate is lower than the natural rate, inflation will accelerate and vice versa. LRPC is a vertical line of natural unemployment (friction unemployment + structural unemployment). Along with the LRPC, the rise in inflation does not affect the unemployment rate.

Phillips curve shows the relationship between inflation and unemployment. The long-term Phillips curve is a vertical line, indicating that there is no permanent trade-off between inflation and unemployment in the long run. However, the short-term Phillips curve is almost L-shaped to reflect the initial inverse relationship between the two variables. As the unemployment rate increases, the inflation rate declines and inflation rises as the unemployment rate decreases. Short-term Phillips curve: The short-term Phillips curve shows that there is a trade-off between inflation and unemployment in the short term. Compared to the long-term Phillips curve (red), in the long run, we can see that the unemployment rate is almost stable regardless of the inflation rate.

The Phillips curve is a curve showing the relationship between inflation rate and unemployment rate in terms of longitudinal inflation rate and side unemployment rate. According to the classical theory of economics, there are two kinds of curves: a long-term curve and a short-term curve. Therefore, the Phillips curve is composed of two kinds of curves, long term Phillips curve and short term Phillips curve. The long-term Phillips curve and the short-term Phillips curve are shown below. The short-term Phillips curve shows an inverse relationship between inflation rate and unemployment rate. It was a model developed in the 1960s, but later I found a loophole of the concept with high unemployment rate and high inflation. This condition is called stagflation. Therefore, in the 1970s, the long-run Phillips curve model was recognized. (Inflation and Phillips curve)