What is the Philips Curve?
Philips Curve shows the inverse relationship between inflation and unemployment. So as unemployment decreases inflation rises.
This is because when unemployment is low, firms have to increase wages to compete for workers. For firms, higher wages means higher costs which they may pass on to the consumer as higher prices i.e firms may increase price so to ensure they make the same level of profit despite the increased cost. Increase in price is the inflation.
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