Inflation, business cycles and policy

Inflation is a sustained rise in the general price level, not a one-time jump in one price. Demand-pull inflation comes from excess demand; cost-push inflation comes from rising costs (wages, oil, imports) shifting supply left. The Phillips curve once suggested a stable trade-off between inflation and unemployment, but the expectations-augmented version says the trade-off exists only in the short run: once workers expect inflation, they bargain for higher wages and unemployment returns to its natural rate. Business cycles are the economy's recurring ups and downs around its trend, driven by demand shocks, investment swings and policy itself.