NAIRU, which is the non-accelerating inflation unemployment rate, represents the unemployment rate at which inflation will stabilize. The NAIRU theory was used to explain the stagflation phenomenon of the 1970s, when the Phillips curve did not allow this. According to this theory, the reason why there is high unemployment and high inflation simultaneously is because workers can change their inflation expectations, thereby increasing the current inflation rate. This situation has changed the idea that the Phillips curve is a stable and predictable policy tool. Say no to plagiarism. Get a tailor-made essay on “Why Violent Video Games Should Not Be Banned”? Get the original essay However, there is a trade-off between inflation and unemployment in the short term. As production increases, unemployment decreases, so spending within the economy will increase and price levels will rise accordingly. Moreover, according to economists, it cannot be a trade-off between inflation and unemployment in the long term. An increase in unemployment can only lead to a decrease in inflation in the short term. So, in the long run, inflation and unemployment are not linked. The reason that in the short run the curve shifts is due to changes in inflation that occur when workers realize that their nominal wages will change if inflation rises with real wages. decrease accordingly. As such, they will demand a higher nominal wage in order to keep their real wage unchanged, leading to higher production costs and lower profits. Keep in mind: this is just a sample. Get a personalized article from our expert writers now. Regarding the exploitation of the Phillips curve, it has become accepted that policy makers can exploit the trade-off between unemployment and inflation, because more unemployment means less inflation. The short-run Phillips curve represents the relationship between inflation and unemployment rates. The long-run Phillips curve is a vertical line that shows that there is no constant trade-off between inflation and unemployment, while the short-run Phillips curve has a different shape, resembling an L . As unemployment rates fall, inflation rises and vice versa. versa.