 We have constructed aggregate demand aggregate supply model and then we investigated or analyzed the effects of different shocks in aggregate demand aggregate supply model and specifically we focused on two variables output and inflation rate and we looked at those values of those variables in short run as well as in long run. Now our model is almost complete but as an extension of it we have another concept which relates to aggregate supply so it is important that we include it in our discussion and that is the Philips curve. Philips curve and aggregate supply curve are very closely related to each other. You know from where we derived aggregate supply curve and made it based on some variables. If you have a Philips curve then you can derive aggregate supply curve from it. So as an extension we also study the Philips curve and we will also derive aggregate supply curve from it. The basic idea of Philips curve is that A.W. Philips was an economist who studied the relationship between wage growth and unemployment and the result was that there is an inverse relationship between wage growth and unemployment. This means that the lower the unemployment rate, the more wages will increase or the higher the unemployment rate, the lower the growth rate or the lower the wages. This was an empirical result. He took the data and looked at it. This is not an economics evidence. But if we want to put economics in it then a good economics comes out. We know that when unemployment goes down it means the workers' demand increases. If the workers' demand increases then their wages should increase. This means that when unemployment goes down then the wages should increase. So the evidence and empirical findings were absolutely right. If we go to its logic initially. Later on economists have a deep connection with wage. When wages increase then prices also increase because wage increases the cost of production. When the cost of production increases then the output of the farms also increases. Then economists tried to establish the relationship between wage and unemployment with wages. Then they found out that the relationship was negative. This means that when the inflation and unemployment were clear then the relationship between inflation and unemployment was negative. This means that the relationship between inflation and unemployment was negative. Now, the time of the 1960s, since the study of A.W. Phillips was in 1959. The time of the 1960s was a big influence on the policy circle of Phillips. People thought it to be the best model of inflation fluctuation. And because of this, the influence of this theory came on the policy that was made. What does that mean? That the policy maker knew that if he wanted to reduce unemployment then his way is to increase inflation. If I make an expansionary policy then unemployment will decrease. And if I want to reduce the inflation rate then if I increase unemployment then the inflation rate will decrease. This policy trade-off was understood in the 1960s that this is the best theory that guides the policy maker on how to make a policy. But later on, Friedman and Fell, these two economists who started studying Phillips again and they found a flaw in it, that is, they found weaknesses in it. They found that the famous Phillips and its policy circles on the basis of which they think that we can take the policy guidelines but there are some fundamental flaws and weaknesses in it. What are those? Look, Friedman and Fell have said that there are nominal wages and unemployment. Whereas the workers care about real wages. They do not care about nominal wages. They look at how much their real wages are. They always negotiate such wages so that their real wages do not decrease at least at their level. Second, when they negotiate wages, then wages are always negotiated for the next year. At that time, we do not know the inflation rate so that we can see what will be the real wage. Because the real wage can only be found when wages and inflation rates are also known. So we can take out the real wage. The problem is that the negotiation between the workers and the firm is going on for the next year. When we do not know the inflation rate for the next year, then we will have to measure the inflation rate on the basis of expectations. On the basis of expected inflation. The reason why they gave their equation to Phillips was that INF which is inflation is equal to expected inflation minus A multiplied by unemployment gap. And unemployment gap means unemployment minus natural rate of unemployment. And their study conclusion was that in the long run, the economy ultimately reaches UN. This means that any economy cannot afford to increase inflation, then unemployment will decrease. They say that it is possible in the short run. But in the long run, inflation will increase. The unemployment rate will go back to its natural rate. That is, the economy will bear the cost. The benefit will be in the short run and not in the long run. How? Let us look at this from a diagram. This aggregate supply curve is not made here. Rather, it is made by the Phillips curve. And in the Phillips curve, there is a long run which is vertical. And the short run is negatively sloped. Because we said earlier that the relationship is negative. Initially, the economy is at point 1. At that time, the economy has inflation rate INF 1. And unemployment is at natural rate. If the policy maker, the first Phillips curve, takes this advice from him that we have to reduce unemployment from UN to U2, then what will he do for that? He will increase inflation rate in the economy. That is, the economy will reach point 2. This is possible. But Friedman Phelps said that this will not happen. Rather, when the economy reaches point 2, then the expected inflation rate of workers will also increase. When their expected inflation rate increases, then the short run of Phillips will shift to BU. And ultimately, this process will reach the economy point 4. Where the inflation rate has increased a lot compared to INF 1 and INF 4. But unemployment was not able to sustain on U2. It was back on UN. This means that this policy has a negative effect in the long run. On this basis, Friedman and Phelps concluded that there is no trade-off in the long run in unemployment and inflation rate. And the short run and long run Phillips curves are different. And in the short run, if there is any benefit of reducing unemployment, it can only be that the expected inflation of workers has not yet been adjusted. When workers' expected inflation changes, then Phillips curves shift and then there is no benefit of unemployment. Thank you.