U.S. Inflation vs. Unemployment (1941-2003)
Real World Data for Economics Principles
| Phillips Curve (named after A. W. Phillips who developed the idea in
Great Britain) is a curve showing the relationship between the
unemployment rate and the annual rate of increase in the price
level (inflation). In theory, the curve suggests an inverse relationship
between rate of inflation and the rate of unemployment. Lower
unemployment rates, measured as leftward movements on the
horizontal axis, are associated with higher rates of inflation,
measured as upward movements on the vertical axis. |
Source: |
Annual Inflation (1914 - 2003), Bureau of Labor Statistics, U.S. Department of Labor, ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt. Calculated from consumer price index, all urban
consumers, U.S. city average, all items. |
Annual Average Unemployment Rates (1940 - 2003), Bureau of Labor Statistics, U.S. Department of Labor, ftp://ftp.bls.gov/pub/special.requests/lf/aat1.txt. Unemployment rates of the civilian noninstitutional
population. |
How to Read the Data Showcase: The inflation and unemployment data are plotted in SHOWCASE from 1941 to 2003. The last period unemployment rates are plotted against the current period inflation rates as the theory suggests that the expanding aggregate demand, which reduces the unemployment, drives up the price level. In the animation of SHOWCASE, the colored dots appear subsequently by each year's data between inflation and unemployment from 1941 to 2003. Pay a close attention if you can see three negative-sloped curves in the animation. Those three negative-sloped curves represent three periods of short-run Phillips Curves. As the theory predicts, in the short run the full employment is not fulfilled yet, any demand and output expansions would drive up the aggregate prices. In the long run, the relationship between inflation and unemployment is not clear because the full employment occurs in the long run and any aggregate demand increases will not create any more output due to the full employment. In the animation, we do not observe any sensible relationship between inflation and unemployment in a longer horizon such as 1941 ¡V 2003. |
