Unemployment-Inflation Trade-off
Macroeconomic Objectives
AO3·AO4·Diagram required·HL
Syllabus requirement
Short-run and long-run Phillips curve illustrating the trade-off between unemployment and inflation (HL only).
Assessment objectives
AO3 Synthesis and EvaluationAO4 Use of Appropriate Skills
Required diagram: AD/AS curves (HL only).Phillips curve (HL only): short-run and long-run relationship between inflation and unemployment.
Higher LevelThis topic is assessed at HL.
Summary
This topic explains the short-run and long-run relationship between unemployment and inflation, showing why policies that reduce unemployment can create inflationary pressures. The AD-AS model and the Phillips curve are used to illustrate demand-pull and cost-push channels and to show that any short-run trade-off disappears in the long run because of the natural rate of unemployment. Understanding these dynamics helps evaluate policy choices between reducing unemployment and controlling inflation.
