For anyone actually hoping to apply this, a simplified version of the Philips Curve can be approximate
d using the following function
f(x) = % change in unemployment rate
f(x) = (-1/2)((Change in GDP
This assumes that unemployment will be relatively steady when GDP growth is about 4%. A perfect example of this is Canada in 2001. GDP grew by 4.0% annually and unemployment grew to 7.6% from 7.4%.
Obviously, this is just a rule of thumb
. Interestingly, though, a great many political
decisions are made on the basis of simple ‘back of the napkin
’ calculations like this.