Chapter Sixteen: Module Intro -- The Phillips Curve

An old adage says that there is no good news in economics--when one aspect of the economy is doing well, another aspect seems to be causing trouble. The Phillips Curve graphically illustrates this principle. The tradeoff between inflation and unemployment poses all sorts of difficulties for government and Federal Reserve officials. This tradeoff was particularly painful in the late 1970s and early 1980s when the Federal Reseve reduced inflation from over 12 percent to under 4 percent. The problem was that unemployment went from 6 percent to more than 10 percent! In this chapter we explore the reasons why this tradeoff occurs.

This chapter introduces you to the concept of the Phillips Curve. We recommend that you read the lecture notes first, then take the on-line quiz, and finally review the material in the Module summary.

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