Phillips curve and Stagflation

Alban William Phillips, professor at London School of Economics, observed and mentioned in his paper “The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957”, that various economies between this period followed a pattern.
He observed that whenever government expenditure increased, which means higher inflation, turned unemployment number short.
Writing it in simple terms, whenever more and more money entered economy, this new money (Being source of Inflation) helped decreasing unemployment (i.e more and more people got employed in economic activities thus generated)

So according to this logic, Unemployment should never be issue to worry about. RBI can print any amount of money, introduce it in economy through cheapest loan and there would never be situation of people remaining unemployed.
Actually this was the mindset of govt till 1970, they focused on price rise but always thought more expenditure as solution to start new economic activities and people getting employed in it.
This impression challenged itself in 1970, when govt were spending money like crazy, so that they can see new economic activities. But this money wasn’t contributing to any economic activity rather it was increasing products price. As new products were not being manufactured and existing product price were going high due to this extra money.
This was situation of stagflation. Stagnant growth + High inflation.

Phillips curve tells about inverse relationship between rate of inflation and level of unemployment in economy. Higher the inflation, lower the level of unemployment and lower the inflation rate, higher level of unemployment.
Keeping unemployment below its natural rate is not possible for long term. As there are many factor like labor unions, worker demanding more wage when there is high inflation going on in market.

Stagflation is a trap, in which expansionary monetary policy, fiscal policy stop working. These policies keep on pushing price level & have no positive effect on growth.

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