What Is the Phillips Curve? Inflation vs Unemployment

The Phillips curve (in Macroeconomics) describes the tradeoff between inflation and unemployment — and why that relationship is far less reliable than policymakers once believed. You’ll learn where the curve came from, the wage-price mechanism that drives it, and why economists now separate the short-run tradeoff from the long-run “natural rate” of unemployment. I walk through the actual history with real numbers — from the 1960s “policy menu” to the stagflation of the 1970s, when inflation and unemployment both hit around 9% and broke the simple curve. I also cover Milton Friedman and Edmund Phelps’s expectations critique, Paul Volcker’s painful disinflation in the 1980s, and why the curve has looked remarkably flat in recent decades. Whether you’re an economics student or an investor trying to understand inflation and Fed policy, this video gives you everything you need to understand the Phillips curve.

Chapters
0:00 – The Inflation vs Unemployment Tradeoff
0:32 – How A.W. Phillips Discovered the Curve (1958)
1:07 – Why It Happens: The Wage-Price Mechanism
1:34 – The 1960s Policy Menu
1:57 – Friedman, Phelps & Inflation Expectations
2:29 – Stagflation Breaks the Curve (1970s)
2:58 – Short Run, Long Run & the Natural Rate
3:48 – Volcker, the Flat Curve & Key Takeaways

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Image credits:
Milton Friedman — The Friedman Foundation for Educational Choice, CC0 1.0, via Wikimedia Commons.
Edmund Phelps — Robert Scoble, CC BY 2.0, via Wikimedia Commons (cropped/composited): https://creativecommons.org/licenses/by/2.0/
Paul Volcker with President Ronald Reagan, 1981 — Reagan White House Photographic Office, courtesy Ronald Reagan Library/NARA, public domain.

*Disclosure: This is not financial advice and should not be taken as such. The information contained in this video is an opinion. Some of the information could be wrong. This channel is owned and operated by Portfolio Constructs LLC. Some of the links above are affiliate links, meaning, at no additional cost to you, I will earn a commission if you click through and make a purchase.