The Phillips Curve - 60 Second Adventures in Economics (3-6)

60 seconds adventures in economics Number 3. The philips curve. Bill Philips was a crocodile hunter and economist from New Zealand. Who spotted than when employment levels are high wages raised faster People have more money to spend so prices go up and so does inflation. And likewise when unemployment is high the lack of money spent means that inflation goes down. This became known as the Philips Curve. Government even set policy by the curve

Tolerating the inflation when they spent extra money creating jobs. But they forgot that the workers could also see the effects of the curve. So when unemployment went down they expected inflation and demanded higher wages causing unemployment to go back up while inflation remain high which is what happened in the 1970s when both inflation and unemployment rose. Then in the 1990s unemployment dropped while inflation stayed low which all rather took the bent out of Philips's Curve. But at least part of Philips's troubles in trade off leaves on when faster growth and fully employment return you can bet inflation will be alone to spoiled the party.