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Phillips Curve

Expectations-augmented: π = π^e − β(u − u_n) + supply shock. Adaptive: dπ^e/dt = λ(π − π^e). Aggregate demand → u responds to (π−target). The short-run trade-off shifts; long-run is vertical at u_n.

t0.0
π inflation
π^e expected
u unempl.