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 could not. According to the theory, it is explainable why high unemployment and high inflation occur simultaneously because workers can change their inflation expectations, thereby increasing the prevailing inflation rate. This situation has changed the idea that the Phillips curve is a stable and predictable policy instrument. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay However, there is a trade-off between inflation and unemployment in the short run. As production increases, unemployment decreases, so spending within the economy will increase and price levels will rise accordingly. Furthermore, according to economists, it cannot be a compromise between inflation and long-term unemployment. An increase in unemployment can lead to a decrease in inflation only in the short term. Therefore, in the long run, inflation and unemployment are not linked. The reason the curve shifts in the short run is due to changes in inflation that occur when workers realize that their nominal wages will change if inflation increases as real wages. decrease accordingly. They will therefore demand a higher nominal wage to keep their real wage unchanged, causing an increase in production costs and a decrease in profits. Please note: this is just an example. Get a Custom Paper From Our Expert Writers Now With regards to exploiting the Phillips curve, it has been accepted that politicians can exploit the trade-off between unemployment and inflation because more unemployment means less inflation. The short-run Phillips curve describes 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 interest rates unemployment decreases, inflation increases and vice versa. vice versa.