The Phillips Curve can be used to illustrate a macroeconomic policy trade off, namely attempts to reduce unemployment will lead to an increase in inflation and a failure to achieve price stability.
Phillip’s work has been heavily criticized because the stable relationship between unemployment and inflation has broken down. The 1970’s was a period noted for stagflation – high unemployment and inflation. In 2016, the UK’s unemployment rate currently sits at about 5%, while the inflation rate hovers close to 0%. Both periods contradict Phillips’ original findings.
The following materials are intended to support your understanding of this topic. Review and add to your notes.