EconixaECONOMICS FUNDAMENTALS

Interactive simulator

Phillips Curve Lab

The short-run Phillips curve shows an inverse relation between inflation and unemployment: pi = pi_e - 0.5(u - 5), where 5% is the natural rate. This lab lets you push unemployment below the natural rate and watch inflation rise — then raise expected inflation and watch the whole curve shift up, showing why the tradeoff disappears in the long run.

0%2%4%6%8%10%12%-2%0%2%4%6%8%10%Unemployment uInflation πuₙ = 5%SRPC (πe = 2.0%)π = 2.00%
Actual inflation π = 2.00%Unemployment gap (u − uₙ) = 0.0 ppUnemployment at the natural rate: inflation equals expectations.
The trade-off

π = πe − β(u − uₙ), with β = 0.5 and uₙ = 5%. Raising expected inflation shifts the whole curve upward. Moving left along a fixed curve (lower u) buys lower unemployment at the cost of higher inflation.

How to use it

  1. Lower unemployment below 5% and watch inflation rise.

  2. Raise expected inflation and watch the curve shift upward.

  3. Find the long-run Phillips curve at the natural rate.

What you will learn

  • Explain the short-run inflation-unemployment tradeoff.
  • Show how expectations shift the Phillips curve.
  • State why the long-run Phillips curve is vertical.

Model notes

The 0.5 slope and 5% natural rate are illustrative parameters, not estimates for any economy. Supply shocks and credibility effects are omitted.