Tradeoff? Inflation and unemployment
The causes are unrelated.
In the short run, under particular conditions, there can be a relationship.
1958, British economist A.W. Phillips, his
research showed correlation between less unemployment and higher wages.
Later, economists found a correlation between less unemployment and higher price inflation.
They called this the Phillips Curve, even though Phillips correlated unemployment and wages.
Some economists thought that the Phillips curve offers a way to exploit this relationship: increase M when unemployment is high.
Some economists think that policymakers face a tradeoff between inflation and unemployment.
1968, Milton Friedman said inflation and unemployment are unrelated in the long run.
The long-run Phillips curve is vertical.
The non-vertical Philips curve is caused by sticky prices. If not stuck, then it is vertical.
Rational expectations is based on past information and expectations of the future.