Unemployment and inflation are an economy’s two most important macroeconomic issues. The federal government’s fiscal policy and the Federal Reserve’s monetary policy try to maintain both a low unemployment rate around a natural rate and a low inflation rate around 2%.

In your Final Paper,

Evaluate the historical relationship between unemployment and inflation. (hint: You may start from A.W. Phillips’s finding of the relationship between unemployment and inflation.)

Distinguish between the short-run and the long-run in a macroeconomic analysis. Why is the relationship between unemployment and inflation different in the short-run and the long-run?