1. What is the Phillips Curve Model?

The Phillips Curve is an economic model that shows an inverse relationship between inflation and unemployment. The modern version incorporates expected inflation and the natural rate of unemployment (NRU).

2. How Does the Calculator Work?

The calculator uses the Phillips Curve equation:

Where:

• \( Expected \) — Expected inflation rate (%)
• \( b \) — Coefficient measuring inflation sensitivity to unemployment
• \( U \) — Actual unemployment rate (%)
• \( NRU \) — Natural rate of unemployment (%)

Explanation: The equation shows how actual inflation depends on expected inflation and the deviation of unemployment from its natural rate.

3. Importance of the Phillips Curve

Details: The Phillips Curve is fundamental to macroeconomic policy, helping central banks understand the inflation-unemployment trade-off when setting monetary policy.

4. Using the Calculator

Tips: Enter expected inflation (%), coefficient value (b), actual unemployment rate (%), and natural rate of unemployment (%). All values must be valid numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical value for coefficient b?
A: Empirical estimates vary, but b is typically between 0.2 and 0.5 in modern economies.

Q2: How is the natural rate of unemployment determined?
A: NRU is estimated econometrically and varies by country (typically 4-6% in developed economies).

Q3: Does the Phillips Curve always hold?
A: The relationship can break down during stagflation or when inflation expectations become unanchored.

Q4: What's the difference between short-run and long-run Phillips Curve?
A: Short-run shows trade-off, while long-run is vertical at NRU (no permanent trade-off).

Q5: How do inflation expectations affect the curve?
A: Higher expected inflation shifts the curve upward, worsening the inflation-unemployment trade-off.