AP Macroeconomics Flashcards: The Phillips Curve
Written by AP Content Team, Verified for 2026 AP Exams, Last updated: May 2026
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Why is the Long-Run Phillips Curve (LRPC) vertical?
The LRPC is vertical because in the long run, wages and price expectations fully adjust to changes in inflation. Therefore, any attempt to decrease unemployment below its natural rate will only result in higher inflation without a lasting impact on unemployment.
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Why is the Long-Run Phillips Curve (LRPC) vertical?
The LRPC is vertical because in the long run, wages and price expectations fully adjust to changes in inflation. Therefore, any attempt to decrease unemployment below its natural rate will only result in higher inflation without a lasting impact on unemployment.
What happens if policymakers try to hold the unemployment rate below the natural rate for an extended period?
Attempting to keep unemployment below the natural rate requires continuous expansionary policy. This leads to rising inflationary expectations, which repeatedly shifts the SRPC to the right, resulting in accelerating inflation with no permanent reduction in unemployment.
How do inflationary expectations influence the trade-off between inflation and unemployment?
When people expect higher inflation, they demand higher nominal wages, which shifts the SRPC to the right. This worsens the short-run trade-off, meaning a higher rate of inflation is now associated with any given rate of unemployment.
What factors cause the Short-Run Phillips Curve (SRPC) to shift?
The SRPC shifts due to changes in inflationary expectations and supply shocks. For example, an increase in expected inflation or a negative supply shock (like rising oil prices) will shift the SRPC to the right.
What is the relationship between the Aggregate Demand (AD) curve and movement along the SRPC?
Shifts in the AD curve cause movement along the SRPC. A rightward shift in AD (higher demand) leads to a movement up the SRPC (higher inflation, lower unemployment), while a leftward shift in AD leads to a movement down the SRPC.
What does the Short-Run Phillips Curve (SRPC) illustrate?
The SRPC illustrates the inverse, or trade-off, relationship between the inflation rate and the unemployment rate in the short run. As one increases, the other tends to decrease.
What is the Long-Run Phillips Curve (LRPC)?
The LRPC is a vertical line at the natural rate of unemployment (NRU), indicating that there is no long-run trade-off between inflation and unemployment. In the long run, the economy will return to the NRU regardless of the inflation rate.
What is the Natural Rate of Unemployment (NRU)?
The Natural Rate of Unemployment (NRU) is the unemployment rate that persists in the long run when the economy is at its potential output. It is the unemployment rate at which the Long-Run Phillips Curve is vertical.
How does a negative supply shock, such as a sharp increase in energy prices, affect the Phillips Curve?
A negative supply shock causes stagflation—a simultaneous increase in both unemployment and inflation. This event shifts the entire Short-Run Phillips Curve to the right.
If the government enacts expansionary fiscal policy, what is the short-run effect on the Phillips Curve?
Expansionary fiscal policy increases aggregate demand, which leads to a lower unemployment rate but a higher inflation rate. This is represented as a movement up and to the left along a stationary Short-Run Phillips Curve.