Phillips curve.

In plain English

The Phillips curve plots unemployment against wage or price inflation and originally showed a downward-sloping relationship: as the labor market tightened, pay and prices rose faster. The simple version broke down when economies experienced high unemployment and high inflation at the same time. Economists rebuilt it around expectations, arguing the trade-off exists only in the short run and fades once people adjust what they expect inflation to be. Modern versions look much flatter than the original, and there is active debate about why. Central banks still use the idea, with heavy caveats.

01Why it matters

This relationship is the reason a central bank fighting inflation is often willing to accept a weaker job market, so it sits behind decisions that affect hiring and raises.

02The math, step by step

In a simple version, an economy sits at 5 percent unemployment with 2 percent inflation. Push unemployment down to 4 percent and inflation rises to 3 percent. The one-point drop in unemployment bought a one-point rise in inflation, which is the trade-off the curve describes.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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