... is static: shifts in inflation and employment will always return to this level. In other words, it is the equilibrium that will be returned to when the level of inflation is correctly anticipated. The long run Phillips curve (LRPC) is drawn in figure one with a number of short-run curves crossing it (each labelled SRPCx), which represent short-term fluctuations causing trade-offs between levels of inflation and levels of unemployment[1]. Suppose the government in the long run wishes to keep inflation at 0%, which is at point A, giving a level of unemployment at U*, which is the natural rate. The government is able to set this target because in the long-run there can be no trade-off (the UK currently has an inflation target of 2.5%: recognising the practical difficulties in holding prices completely stable as this model is supposing). At point C, the government could try to reduce inflation, which ...

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