Inflation
       rate
(percent
per year)

Unemployment rate
                (percent)

Long-run 
Phillips 
Curve

Short-run
Phillips Curve

    Most economists believe that the long-run
Phillips curve is vertical and at the natural
rate of unemployment (the rate is assumed
to be 5% in this graph). The short-run Phillips
curve, however, shifts when people revise
their expectations of inflation. 
    Slide the slider to see how changes in 
expected inflation rate shift the short-run 
Phillips curve. Also move point B along the
curve to see how the short-run trade-off
between unemployment and inflation changes
when the curve shifts.

1

2

3

4

5

6

7

8

9%

1        2         3        4        5         6        7        8%

    (For simplicity, we assume the short-run 
Phillips curve to be linear. )

          Short-run Phillips Curve
(Expectation-augmented Phillips Curve)

v = Vector((0, 0), (0, 11))
L_1 = (5, 0)
L_2 = (5, 10)
a_1 = Segment(L_2, L_1)
π_{ex} = 2 (slider from 0.1 to 8.5, step 0.1)
S_1: ((0.5 * π_{ex}), 10)
S_2: (5 + (0.5 * π_{ex}), 0)
u = Vector((0, 0), (11, 0))
b = Segment(S_1, S_2)
A = Intersect(a_1, b)
X_A: (0, y(A))
c = Segment(X_A, A)
text4: "Expected inflation
rate = " + π_{ex} + "%"
B = Point(b)
X_B: (x(B), 0)
Y_B: (0, y(B))
a = Segment(Y_B, B)
d = Segment(B, X_B)
V_1 = (0, 1)
V_2 = (0, 2)
V_3 = (0, 3)
V_4 = (0, 4)
V_5 = (0, 5)
V_6 = (0, 6)
V_7 = (0, 7)
V_8 = (0, 8)
V_9 = (0, 9)
U_1 = (1, 0)
U_2 = (2, 0)
U_3 = (3, 0)
U_4 = (4, 0)
U_5 = (5, 0)
U_6 = (6, 0)
U_7 = (7, 0)
U_8 = (8, 0)