An economic model called the Phillips Curve shows how inflation and unemployment relate to one another.
According to the curve, unemployment is low while inflation is high, and vice versa.
This theory is based on the idea that employers are more likely to hire workers when wages are relatively low, and workers are more likely to accept lower wages when inflation is high.
The Phillips Curve was created in the 1950s, and until the 1970s, when the United States suffered a phenomenon called stagflation, it was largely accepted by economists.
Stagflation refers to a period of high inflation and high unemployment, which contradicted the Phillips Curve’s predictions.
This led many economists to question the accuracy of the model and to search for alternative explanations for the relationship between inflation and unemployment.
One possible explanation for the Phillips Curve’s breakdown is the concept of the natural rate of unemployment.
When an economy is running at full capacity, there will be a certain amount of unemployment present.