ABSTRACT
This chapter presents some hypotheses and theories that may explain at least some of them. It attempts to the concepts of trade-off curves and their shifts and cyclical loops to the earlier business cycle theories. Over a large portion of the loop inflation and unemployment are either rising together or falling together. In Australia during the 1950s, unemployment ranged from about 0.5 percent to 1.5 percent while inflation varied from less than 0.5 percent to nearly 11 percent. The system moves back up the trade-off curve (TOC), but because of the cumulative nature of the expansion, goes through into a new prosperity phase, and the whole cycle is repeated. The solid line represents a long-run TOC around that fluctuations take place, within the limits of a stable loop. Moreover, even if the movements were systematic and understandable, if they were always in one direction they would lead ultimately to intolerable inflation or intolerable unemployment.
