The idea that the Phillips Curve represented a stable relationship between inflation and unemployment:

has proven to be true and is a keystone of present-day economic policy.
was only held seriously by a minority of economist led by Milton Friedman.
was shown wrong by statistical studies during the 1960s.
was shown wrong by the behavior of prices and unemployment in the United States during the 1970s.

If the long-run Phillips curve is vertical,

the economy is suffering from cost-push inflation.
any attempt to reduce unemployment by increasing inflation can have only temporary success.
there could be no business cycle.
the accelerator would not work.
our unemployment statistics would be meaningless.

Back to Reading Overview Next Page