The Phillips Curve shows the inverse relationship between unemployment rate and inflation rate. It suggests that as unemployment decreases, inflation tends to increase (and vice versa).
Think of a seesaw with two people on either end. When one person goes up, the other person goes down. Similarly, the Phillips Curve illustrates that when unemployment is low, inflation tends to rise, and when unemployment is high, inflation tends to be lower.
Stagflation: A situation where an economy experiences both high inflation and high unemployment simultaneously.
Natural Rate of Unemployment: The level of unemployment that exists when an economy is operating at its potential output.
Demand-Pull Inflation: A type of inflation caused by excessive aggregate demand in relation to available supply.
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