MENTAL MODEL · M3929

The Phillips Curve

BehaviorHigh supportPsychology

Included

Version 1.0.0 · Updated 2026-07-30

CORE DEFINITION

Initially discovered a stable negative relationship between unemployment rate and wage inflation rate, later extended to the tradeoff between inflation and unemployment. It reveals the policy choice dilemma of "high inflation and low unemployment" or "low inflation and high unemployment" in the short run, becoming the core theoretical basis of Keynesian demand management.

SCAFFOLDING EFFECT

psychology

Reduce cognitive load

Visualization of policy tradeoffs. It is like the "production possibility frontier", showing the "painful choices" faced by policymakers. However, the "stagflation" (high inflation + high unemployment) in the 1970s proved that this tradeoff is not eternal, giving rise to the "expectations-augmented Phillips curve".

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Anchor fast decisions

Describes the short-run negative relationship between unemployment rate and inflation rate: when unemployment is low, wages/prices rise faster. In the long run, it is vertical (natural rate of unemployment), and monetary expansion only pushes up inflation.

MINIMUM ACTION

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Practice this model in one real situation:

When formulating monetary policy, weigh unemployment against inflation. In the short run, demand management can be used to trade off between the two
in the long run, be wary of inflation expectations becoming unanchored.

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Source support: Explicit

link
en.wikipedia.orghttps://en.wikipedia.org/wiki/Phillips_curveZH · Explicit
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