Inflation & unemployment trade-offs

In the short run there is often a trade-off between inflation and unemployment: stimulating demand pushes unemployment down but inflation up, and cooling the economy does the reverse — the relationship the Phillips curve describes. Policymakers were once tempted to treat it as a stable menu. The catch is expectations. Once people come to expect a given rate of inflation, they build it into wages and prices, and the short-run trade-off shifts: keeping unemployment below its natural rate then requires ever-accelerating inflation. In the long run, when expectations catch up, there is no trade-off at all — the long-run Phillips curve is vertical at the natural rate of unemployment, so trying to hold unemployment permanently lower just yields higher inflation with no lasting gain. Worse, a supply shock can raise both together — stagflation — which the simple trade-off can't explain. It is a lesson in why short-run levers don't grant long-run control.