es regarding the way that the determinants of total final demand operate form the basis of large macroeconomic models of the economy that are used in economic forecasting to make predictions of output and employment and related variables. During the last few years, the record of most such predictions has been poor, and an analysis of the errors has led to continual revisions of the basic models and refinements of the theory. Phillips curveThe Phillips curve illustrates the trade-off found by economist A. W. Phillips between lower unemployment and increased inflation. If unemployment is low at 4 percent, inflation is slightly high at 6 percent (point a). If inflation is eliminated, unemployment increases to 8 percent (point b). The trade-off poses a dilemma for policy-makers, although economists disagree on whether this relationship exists. Microsoft Chart...
