hey how you doing internet this is Jacob Clifford what if I told you that the guy that developed the Phillips curve that you're learning in your macro class is the same guy that developed the Phillips head screwdriver that is amazing if we're true but it's not two different guys but this graph that you need to know for your class does have some things in common with this first the graph the Phillips curve shows the relationship between two different variables inflation on the y-axis and unemployment on the X in the short run there's an inverse or negative relationship between the two that's because when there's a recession there's high unemployment but usually inflation is low and this shows the idea of a negative output Gap or a recessionary gap and when there's High inflation usually unemployment is low and this shows the idea of a positive output Gap so when your teacher and Professor asks you to draw the Phillips curve label inflation label unemployment draw downward sloping curve and label one point either a negative output Gap a positive output gap or somewhere in the middle showing the idea of Full Employment but this downward sloping curve is only for the short run there's also a long run Phillips curve and it looks like this in the long run there's no relationship between inflation and unemployment so prices can keep going up but unemployment is going to stay the same wait how is that even possible you already understand this because you understood the concepts you learned back in units 3. here is the aggregate demand and supply curve that you learned and here's the Phillips curve they're both showing the idea of Full Employment let's say at five percent unemployment if consumer spending increased then the aggregate demand would shift to the right and we'd have a higher price level and more output which means less unemployment and again that's the idea of a positive output Gap and you can show this on the Phillips curve it's just movement along the curve up here showing inflation went up and unemployment went down but again this is showing the short run in the long run prices for resources and wages will increase so the short run Agri Supply will shift to the left price level goes up and we end up right back at full employment remember this is the whole idea of long-run self-adjustment and you can show the same concept on the Phillips curve but in this case it's not moving along the curve the entire short run Phillips curve shifts to the right inflation went up and unemployment went down we ended up back at full employment and that explains why the long run film curve is vertical the economy can adjust over time but eventually ends up back at full employment there it is a vertical long run Phillips curve but let's do the whole thing again with a recessionary gap so we have aggregate demanded Supply showing full employment then let's say exports fall so aggregate demand Falls price level goes down and unemployment goes up because we're producing less output and that would be movement along the short run Phillips curve showing less inflation and more unemployment a negative output Gap but again this is just showing the short run in the long run eventually prices for resources and wages will fall the shortened Agri Supply will shift to the right putting us back at full employment and that means the short run Phillips curve shifts to the left causing inflation to go down and unemployment to go back to full employment the point is whenever the economy self-adjust we're always going to be at full employment and that makes the long run Phillips curve vertical here's a tip that might help you anytime there's an increase or a decrease in aggregate demand that's going to move along the short run Phillips curve but if the aggregate supply shifts that's going to shift the short run Phillips curve by the way that clip came from a video where I cover all the key graphs you need to know for your macroeconomics class the link is right here be sure to check it out and of all the graphs that you learn in this class the Phillips curve is probably the easiest because if you understand aggregate demanded Supply you understand the Phillips curve and just like aggregate demand and Supply the production possibly's curve and the business cycle the Phillips curve shows you where the economy is either has a negative output Gap a positive output gap or it's at full employment it's easy you got it you totally got this but wait what does the Phillips curve have to do with a Phillips head screwdriver well the Phillips curve was developed in the late 1950s and for a while it was pretty accurate the real world economy did show a negative relationship between inflation and unemployment but starting in the 1970s it lost a little bit of its predictability and and didn't really show what's going on with the real world economy so several economists have come out and said that this should not be in textbooks that this should not be part of your macroeconomics class the point is like the screwdriver the Phillips curve is a little beat up it's a little rusty but it's still an important tool so yes there's other tools out there that are way better but you still need to know how to use this one okay now it's time to do two things first if you like these videos if they're helping you please like And subscribe and check out the ultimate review packet it has tons of practice questions to help you get an A in your class and to rock your next exam and the second thing we have to do it's time for a pop quiz you know the drill I have several questions to help you learn and practice this stuff but they're not going to be on the screen for very long so make sure to pause the video then check out the answers inside the comments below thanks for watching until next time foreign [Music]