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Philip's curve is an essential tool to analyze macro-economic policy.
The curve suggested that changes in the level of unemployment have a direct and predictable effect on the level of price inflation. The accepted explanation during the 1960’s was that a fiscal stimulus, and increase in AD, would trigger the following sequence of responses:
1. An increase in the demand for labor as government spending generates growth.
2. The pool of unemployed will fall.
3. Firms must compete for fewer workers by raising nominal wages.
4. Workers have greater bargaining power to seek out increases in nominal wages.
5. Wage costs will rise.
6. Faced with rising wage costs, firms pass on these cost increases in higher prices.
In summary the curve states that inflation and unemployment stating that have a stable and inverse relationship and the lower an economy's rate of unemployment, the more rapidly wages paid to labor increase in that economy.
well if the curve shows that unemployment is high, the inflation would be law, but only in short-term, as for relationship, I'm sorry I'm not an expert in that, however I guess it would be lower inflation and higher unemployment would increase the investment, while other would high inflation and low unemployment would be less investment, so if ur not investing, ur saving.
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In economics, the Phillips curve is a historical inverse relationship between rates of unemployment and corresponding rates of inflation that result within an economy.
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Phillip's curve shows that there exists an inverse relationship or trade-off between the rate of unemployment and the rate of increase in money wages or wage inflation.
