Unemployment, Inflation and the Phillips Curve

Abstract

How do we judge the performance of any economy? How can we say that one country’s economy is performing better than another’s? There are various measurements that can be taken, but the rate of unemployment and the rate of inflation are certainly two of them. Economists and governments may debate much over the appropriate economic policies required for any country, but there is little or no dissension about the fact that low rates of unemployment and inflation (probably linked with a high rate of economic growth) are the appropriate targets. This, then, is the heartland of macroeconomics, both in terms of theory and of recommended government policy.