Both the short-run Phillips curve and the long-run, L-shaped Phillips curve
The Phillips curve shows the relationship between unemployment and inflation. In the short run, lower unemployment tends to mean higher inflation. In the long run, that trade-off disappears entirely.
Real World
In the late 1980s UK boom, unemployment fell from 11% to under 7% while inflation rose toward 10%, tracing the short-run Phillips curve — before expectations adjusted and stagflation followed in the early 1990s.
Exam Focus
Distinguish SRPC from LRPC explicitly: state that the LRPC is vertical at the NAIRU and explain why the short-run trade-off breaks down.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
How well did you know this?