Phillips curve graphs: short-run and long-run Phillips curves, supply shocks, expected inflation and the natural rate
Phillips Curve draws the short-run Phillips curve (SRPC), sloping down and bending, and the vertical long-run Phillips curve (LRPC) at the natural rate of unemployment, with the inflation rate up the side and the unemployment rate along the bottom. It shows the short-run tradeoff between inflation and unemployment as a movement along the SRPC, up when aggregate demand rises and down when it falls, and the long run after it, when expected inflation catches up and the economy returns to the LRPC at the new inflation rate. It shifts the SRPC after a supply shock (stagflation) or a change in expected inflation, and shifts the LRPC when the natural rate of unemployment changes, with points A, B and C and dashed lines to the inflation and unemployment rates at the axes.
Teachers use it for AP Macroeconomics questions on tests, worksheets and slides. Start from a common setup, like demand-pull inflation, a supply shock or the long-run adjustment back to the LRPC, and draw it schematic, with no numbers, as AP graphs are drawn, or on numbered axes in percent, typing the natural rate, expected inflation and the rates at each point, with the inflation axis running below 0% for deflation. Any label, from SRPC₁ and LRPC to π₁ and uₙ, can be written, left as a blank line for students, or left off, and the graph prints in color or black and white.
What you can set
- Common setups: SRPC and LRPC, demand-pull inflation, falling demand, a supply shock, higher expected inflation, the long-run adjustment back to the LRPC, a lower natural rate, a numbered graph, and a blank-label worksheet
- Schematic axes with no numbers, as AP graphs are drawn, or numbered axes in percent, fitted to the graph or typed, with the percent signs on the numbers, in the axis titles or left off, and gridlines
- The SRPC and LRPC each shown or hidden, how sharply the SRPC bends (gentle, normal or strong), and where the natural rate of unemployment sits; numbered, the natural rate, expected inflation and a second point the SRPC passes through
- What moves: nothing, the economy up or down along the SRPC, the SRPC shifting right or left after a supply shock or a change in expected inflation, or the LRPC shifting left or right, with the SRPC moving with it or not; small, medium or large, or to the rates typed on a numbered graph
- The long run after a movement along the SRPC, as expectations adjust and the economy returns to the LRPC at C, with up to three shift arrows and arrows from point to point
- Points A, B and C, dashed lines to the axes, and the inflation and unemployment rates written there, like π₁, π₂, u₁ and uₙ
- Every label as text, a blank line for students, or none, with _ for subscripts like u_n; the chart and axis titles (or blank lines); color or black and white; arrows at the axes’ ends; and label size
Copying, printing and sharing
Copy the figure straight into a test, worksheet or slide, or download it as a PNG or SVG. Printing the page prints
just the figure. Share link copies the page’s address with your settings in it, so anyone who opens it sees this
exact figure, and presets save settings you use often in your browser. It’s free, with no sign-up.
Frequently asked questions
Why does the short-run Phillips curve slope down?
In the short run, a rise in aggregate demand pushes output up, so unemployment falls, and pushes the price level up faster, so inflation rises; a fall in aggregate demand does the opposite. With expected inflation fixed, that tradeoff is a movement along the short-run Phillips curve (SRPC). Under Movement, choose Along SRPC and a Direction, Up (inflation rises) or Down (unemployment rises), to draw the move from A to B.
Why is the long-run Phillips curve vertical?
In the long run, expected inflation catches up with actual inflation and unemployment returns to the natural rate, whatever the inflation rate, so there is no tradeoff: the long-run Phillips curve (LRPC) is a vertical line at the natural rate of unemployment, as the long-run aggregate supply curve is vertical at full employment. After a movement along the SRPC, tick Long run: expectations adjust, back to the LRPC at C, and the SRPC shifts to SRPC₂, crossing the LRPC at point C at the new inflation rate.
How does a supply shock shift the Phillips curve?
A negative supply shock, like a sharp rise in oil prices, raises inflation and unemployment at the same time, stagflation, which shifts the short-run Phillips curve to the right (up). The economy moves off the LRPC to a point with both higher unemployment and higher inflation; a positive supply shock shifts the SRPC to the left. Under Movement, choose SRPC, set Why it shifts to Supply shock and pick a Direction, and point B lands on the new curve, to the right of the LRPC for a negative shock.
What is the difference between a shift of the short-run Phillips curve and a movement along it?
A change in aggregate demand moves the economy along the short-run Phillips curve, trading lower unemployment for higher inflation or the reverse. A change in expected inflation or a supply shock shifts the whole SRPC: higher expected inflation shifts it up and to the right, so every unemployment rate comes with more inflation. Under Movement, Along SRPC draws a movement from A to B on one curve; SRPC with Why it shifts set to Expected inflation draws the curve shifting up or down the LRPC, with B on the LRPC at the new expected inflation rate.
What shifts the long-run Phillips curve?
A change in the natural rate of unemployment, the frictional and structural unemployment left at full employment. Better job matching or job training lowers it and shifts the LRPC left; changes that make job searches longer raise it and shift the LRPC right, and the long-run aggregate supply curve shifts the opposite way. Under Movement, choose LRPC and a Direction, Left (lower NRU) or Right (higher NRU), and tick The SRPC shifts with it to move the short-run curve over too.
How do I make a Phillips curve worksheet with blank labels?
Under Labels, set Every label to Blank lines, and each curve name, point letter and rate at the axes becomes a line for students to write on; set any one back to Text to give it away. The Students label a movement (blank labels) setup does this for the long-run adjustment from A to B to C. Choose Black and white under Look for printing, and set the axis titles to blank lines under Titles too if you like.
Can a Phillips curve graph have numbers on the axes?
Yes. It starts schematic, with no numbers, as AP Macroeconomics graphs are drawn; choose Numbered under Axes and type the Natural rate (A) and Expected inflation (A), where the curves cross, and a second point the SRPC passes through, which is B for a movement along it. The axes fit themselves, running below 0% when a curve falls into deflation, the percent signs go on the numbers or in the axis titles, and the panel lists each point’s unemployment and inflation rates.
Econ Figures Phillips Curve