The early Phillips curve showed a trade-off between unemployment and inflation because it was drawn for a period in which the main source of instability was aggregate demand.

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The early Phillips curve was based on data from the 1950s and 1960s, when the main concern was managing demand-side fluctuations in the economy. As unemployment decreased, firms had to compete more for workers, which led to higher wages and prices. This relationship appeared to be a trade-off between unemployment and inflation, and was the basis for early Keynesian macroeconomic policy. However, as the economy became more complex and other factors such as supply shocks and inflation expectations became more important, the Phillips curve relationship broke down.

The Early Phillips Curve Showed a Trade-Off Between Unemployment and Inflation