Phillips Curve Simulator
The 1958 Phillips curve looked like a stable menu — pick your inflation rate, get the unemployment rate. Then the 1970s happened. Watch the original curve break down under the Friedman-Phelps expectations hypothesis, then rebuild as the modern expectations-augmented curve.
Short-run curves for each expected-inflation level (gray, faded), long-run curve at u = NAIRU (dashed), and the actual economy's path (green dots).
The Phillips curve in three acts
Act 1: Phillips (1958). A. W. Phillips plotted UK wage inflation against unemployment from 1861–1957 and found a stable inverse relationship. Samuelson and Solow (1960) recast it as a "menu" for U.S. policymakers — pick unemployment, get inflation. Static expectations: workers negotiate wages assuming next year's prices look like this year's.
Act 2: Friedman (1968), Phelps (1967). In separate papers, both economists argued the menu is an illusion. Once workers realize inflation is running higher than expected, they demand higher nominal wages, which shifts the short-run curve up. There's no permanent tradeoff — only a temporary one that lasts until expectations catch up. The long-run Phillips curve is vertical at the natural rate of unemployment (NAIRU).
Act 3: The 1970s vindicated the critics. Two oil shocks (1973, 1979) plus expansionary policy produced stagflation — high inflation and high unemployment simultaneously. The 1958 menu was gone. Paul Volcker's Fed then pushed unemployment above 10% to force expected inflation down, at exactly the cost Friedman-Phelps predicted. Today's textbook version is: π = πe − β(u − u*) + shock, with πe updated by past inflation.