Passage: The Phillips Curve traditionally illustrates the inverse relationship between inflation and unemployment. The underlying logic is that when unemployment is low, firms must compete for a limited pool of workers by offering higher wages. These increased labor costs are then passed on to consumers in the form of higher prices, leading to inflation. Conversely, during a recession, high unemployment keeps wages stagnant and inflation low. However, the phenomenon of 'stagflation' in the 1970s—characterized by both high inflation and high unemployment—challenged the universality of this model. Modern economists now argue that while the relationship may hold in the short term, long-term inflation is more a product of inflationary expectations and supply shocks than of unemployment levels alone.