Phillips Curve Application Two

The Phillips Curve predicts a negative relationship between output fluctuations and the change in inflation.
See page 224+  Phillips curve.

The basic Phillips curve (from Jones Macro Econ textbook – note that most other textbook display the Phillips curve differently).


The Phillips curve predicts a positive relation between short-run output deviations and changes in inflation.

With short-run output above potential (in the “booming economy section of the figure above), inflation is expected to increase.

With short-run output below potential (in the ‘slumping economy’ section above), inflation is expected to decrease.