1. What is the Short Run Phillips Curve?

The Short Run Phillips Curve represents the inverse relationship between unemployment and inflation in the short term. It suggests that lower unemployment comes at the cost of higher inflation, and vice versa.

2. How Does the Calculator Work?

The calculator uses the Short Run Phillips Curve equation:

Where:

• \( \beta \) — Coefficient measuring the responsiveness of inflation to unemployment
• \( U \) — Actual unemployment rate (%)
• \( U^* \) — Natural rate of unemployment (%)

Explanation: The equation shows how inflation changes when unemployment deviates from its natural rate. A negative sign indicates the inverse relationship.

3. Importance of the Phillips Curve

Details: The Phillips Curve is crucial for understanding macroeconomic trade-offs, guiding monetary policy, and predicting inflation trends based on labor market conditions.

4. Using the Calculator

Tips: Enter the beta coefficient, actual unemployment rate, and natural rate of unemployment. All values must be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical value for β?
A: Empirical estimates vary, but β is typically between 0.2 and 0.5 for many developed economies.

Q2: Does the Phillips Curve always hold?
A: The relationship may weaken or break down during periods of stagflation or when inflation expectations become unanchored.

Q3: What's the difference between short-run and long-run Phillips Curve?
A: The short-run curve shows a trade-off, while the long-run curve is vertical at the natural rate of unemployment.

Q4: How is U* determined?
A: The natural rate of unemployment is estimated using statistical methods and reflects structural unemployment.

Q5: Can this predict absolute inflation levels?
A: No, it only predicts changes in inflation relative to expected inflation.