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Long-run Phillips curve (LRPC)

Definition

The long-run Phillips curve illustrates that there is no permanent trade-off between inflation and unemployment in the long run. It suggests that any attempt to reduce unemployment below its natural rate will only result in higher inflation.

Analogy

Think of a treadmill at a gym. No matter how fast you run (trying to reduce unemployment), you won't be able to permanently move forward without increasing speed (inflation). In the long run, you'll end up back where you started.

Related terms

Short-run Phillips curve (SRPC): The short-run Phillips curve shows an inverse relationship between inflation and unemployment in the short run, suggesting that reducing unemployment can lead to higher inflation temporarily.

Stagflation: Stagflation refers to a situation where there is both high inflation and high unemployment in an economy. It contradicts the traditional relationship depicted by the Phillips curve.

Natural rate of unemployment: The natural rate of unemployment represents the level of unemployment that exists when an economy is operating at its potential output. It includes frictional and structural unemployment but excludes cyclical unemployment.