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Short-run Phillips curve (SRPC)

Definition

The short-run Phillips curve represents the inverse relationship between the unemployment rate and the inflation rate in the short run. As unemployment decreases, inflation tends to increase, and vice versa.

Analogy

Imagine a seesaw at a playground. When one side goes up (unemployment decreases), the other side goes down (inflation increases). They have an inverse relationship just like the short-run Phillips curve.

Related terms

Long-run Phillips curve (LRPC): The long-run Phillips curve shows that there is no trade-off between inflation and unemployment in the long run. It suggests that there is a natural rate of unemployment where inflation remains stable.

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.