Philips Curve Case

From few decades, it has remained hot debate among economists that whether it is possible to

achieve two main macroeconomic goals, low inflation and low unemployment, in the particular

economy at the same time? It's remained one of challenge for developing countries to sustain

low inflation at low unemployment rate. In this regard in 1960, the concept of Phillips curve

emerged, named A W Phillips who is the pioneer of the Phillips curve in UK. This curve

suggests negative relationship between the rate of inflation and unemployment. There are three

assumption of Phillips curve; first one is, in short run, there is tradeoff between inflation and

unemployment. Second, aggregate supply shock can break the concept of Phillips curve because

it can cause both higher the rate of inflation and unemployment which is also known as

stagflation. Third, in long run there is no significant tradeoff between inflation and

unemployment. Therefore economists have best interest to identify their relationship; there is a

short run tradeoff between the rate of inflation and unemployment, (McConnell, 16th ed).

In this regard it has been also seen in many studies that there is short run tradeoff between

inflation and unemployment in different countries in different time periods. Though, the rate of

low