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Inflation, Unemployment & The Phillips Curve Both the "demand-pull" and "cost-push" theories of inflation are able to be summarized by the Phillips Curve: as unemployment approaches zero, inflation rises. The consequent solutions to the inflation problems differ from demand pull to cost push: "demand-pull" theorists concentrate on bringing down demand by, for example, reducing government expenditure, while "cost-pushers" call for the easing of wage pressure by institutional reform or incomes policies. "Demand-pull" inflation is generated by the pressures of excess demand as an economy approaches and exceeds the full employment level of output. Output, is generated by aggregate demand for goods therefore, whatever aggregate demand happens to be, aggregate supply will follow suit. However, at full employment output, if aggregate demand rises, output cannot follow because of full employment restrictions. Consequently, the only way to clear the goods market, then, is by raising the money prices for goods, essentially causing inflation. Demand-pull...

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