Philips’ Curve (2) — Structure and Movement of Phillips Curves

The Phillips curve theory argues that “low unemployment leads to high inflation and high unemployment leads to low inflation.” The reason is explained as follows. <h1>Structure of Philips Curve</h1> <img alt="" src="https://miro.medium.com/v2/resize:fit:641/1*xlega7LgI169kvqPkJpCSQ.png" style="height:393px; width:513px" /> Structure of Philips’ Curve Higher unemployment does not increase wages, so the price of products made by hiring people does not increase. If the government’s economic stimulus policy lowers the unemployment rate, there is a competition to secure people. Producers who need people must decide whether to raise wages or reduce production. Producers who raise wages and secure people become expensive because of the increased production costs. In addition, a reduction in production leads to a shortage of supply, and an increase in labor costs leads to an increase in the purchasing power of wage earners. Therefore, the higher the unemployment rate, the lower the inflation rate, and the lower the unemployment rate, the higher the inflation rate. The above basic logic is unified in several formulas explaining Phillips curve theory. In other words, the unemployment rate is an independent variable (cause), and the inflation rate is a dependent variable (result). The reverse does not hold true. Higher inflation does not lower the unemployment rate, and lower inflation does not increase the unemployment rate. <a href="https://medium.com/@harrykakakaka/philips-curve-2-structure-and-movement-of-phillips-curves-8ac67a8a81f9">Website</a>