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Economics

Phillips Curve Dynamics and Inflation Expectations

Quick fact

In the 1970s, many economies experienced high inflation and high unemployment at the same time—an impossible combination according to the original Phillips curve. This 'stagflation' led economists to add inflation expectations to the model, fundamentally changing how we view the trade-off.

Why this is interesting

You've probably heard that low unemployment is good for the economy—but did you know it can also push prices up? And why do economists think that link might vanish if people expect inflation?