It is important to remember that the Phillips curve depicted above is simply an example. The actual Phillips curve for a country will vary depending upon the years that it aims to represent. Notice that the inflation rate is represented on the vertical axis in units of percent per year. The unemployment rate is represented on the horizontal axis in units of percent. The curve shows the levels of inflation and unemployment that tend to match together approximately, based on historical data. In this curve, an unemployment rate of 7% seems to correspond to an inflation rate of 4% while an unemployment rate of 2% seems to correspond to an inflation rate of 6%. As unemployment falls, inflation increases. The Phillips curve can be represented mathematically, as well. The equation for the Phillips curve states inflation = [(expected inflation) – B] x [(cyclical unemployment rate) + (error)]
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This note was uploaded on 12/13/2011 for the course ECO 1310 taught by Professor Staff during the Fall '10 term at Texas State.