Question

How might we reconcile the phillips curve curve with the concept of the natural rtae of unemployment?

Answer 1

Philips curve shows the inverse relation between inflation and unemployment. The higher inflation will leads to lower of unemployment rate. In real world both unemployment and inflation are very high than the Philips curve leads to stagflation. The short run Philips curve is downwards sloping, on the other hand, there is no relation between inflation and unemployment in long run. Because the long run Philips curve is a vertical line. The none accelerating inflation rate of unemployment (NAIRU) states that, when unemployment equal natural rate of unemployment the inflation become stable. If the unemployment is below or above the natural rate the inflation will accelerate or decelerate. There are several expansionary efforts put forward to decrease unemployment rate below its natural rate, but this lead to high level inflation.
The aggregate supply shocks caused due to high level of stagflation. This decrease in aggregate supply reduce real GDP output and also increase the unemployment level and the price level rises. Through this shift in aggregate supply leads to cost push inflation. So the inflation and unemployment rate in long run were determined through natural rate of unemployment.