What is the trade-off between inflation and unemployment as suggested by the Phillips Curve?

The trade-off between inflation and unemployment is highlighted by the Phillips Curve, which suggests that there is an inverse relationship between the two in the short run. This means that if inflation is reduced, it typically results in higher unemployment. This occurs because when policymakers attempt to lower inflation by tightening monetary policy—such as raising interest rates or reducing government spending—economic activity may slow down. As a result, businesses may hire fewer workers or lay off existing employees, leading to higher unemployment rates.

The essence of the Phillips Curve is that while there may be a short-term trade-off between inflation and unemployment, they can interact in complex ways over the long term. This relationship has been a significant area of economic study, indicating the tensions policymakers face when trying to achieve low inflation and low unemployment simultaneously. Therefore, the assertion that reducing inflation will cause higher unemployment is in line with the traditional interpretation of the Phillips Curve.