Phillips Curve: 

The inverse relationship between inflation (percentage change in price level and wage growth) and unemployment is represented graphically through the Phillips curve. Wage growth and inflation move very closely together, so Phillips curves are usually drawn with the inflation rate on the vertical axis and the unemployment rate on the horizontal axis. The downward sloping nature of the curve shows that there is, in theory, a trade-off between inflation and unemployment in the short run - this means that in order to lower the rate of unemployment in an economy, say, we must be prepared to have a higher rate of inflation. Phillips Curve explains the inflation phenomenon encompassing two aspects. Those aspects are Demand Pull and Cost Push. The demand pull inflation is caused when an economy faces the pressure created by excess demand as it proceeds towards full employment and beyond. The condition of progression beyond the full employment level of output creates that extra pressure on the economy leading to the phenomenon of inflation. In such a situation the output fails to match the demand because of the stringency of full employment. Therefore the only remedy is to clear off the goods in the market and to achieve this goal the prices of the good are raised. The Phillips curve was hailed in the 1960s as providing an account of the inflation process hitherto missing from the conventional macroeconomic model. After four decades, the Phillips curve, as transformed by the natural-rate hypothesis into its expectations-augmented version, remains the key to relating unemployment (of capital as well as labor) to inflation in mainstream macroeconomic analysis. Economists soon estimated Phillips curves for most developed economies. Most related general price inflation, rather than wage inflation, to unemployment. Of course, the prices a company charges are closely connected to the wages it pays. Modern macroeconomic models often employ another version of the Phillips curve in which the output gap replaces the unemployment rate as the measure of aggregate demand relative to aggregate supply.