Kun's Law basically tells you how changes in production lead to changes in unemployment. Before, when we looked at the concept of the natural rate of unemployment, we talked about it in terms of the natural level of production. The intuition was basically this: – At the natural level of production, there are a certain number of workers who must be employed to produce that output. So there is a natural rate of employment that corresponds to the natural level of production.– If there is a natural rate of employment, there is obviously a corresponding natural rate of unemployment, for example if you need 95% of people eligible and looking for work. be employed to produce the natural level of output, then there will be a natural unemployment rate of 5%.– If output exceeds the natural level of output, then you need more workers, so the employment rate increases and the unemployment rate falls below the natural unemployment rate. If output falls below the natural level of output, you need fewer workers, so the employment rate falls and the unemployment rate rises above the natural unemployment rate. Okun's law tells you the link between production and unemployment. This is not a one-to-one relationship, unemployment responds less than one-to-one to changes in production. There are several reasons for this:1. In any business, the company usually needs a set number of employees, regardless of its production. If a company is in the construction business, when demand falls, they can lay off builders and engineers because there is no work for them, but the Ministry of Finance can still have pretty much the same amount of work to be done, even if the numbers aren't. look this good. Likewise, if production increases, they will hire more builders and engineers and keep a similar number of paper. Employment or a change in inflation is represented by movement along the Phillips curve. But the relationship in wage setting also included expected prices as well as the unemployment rate. When expected prices are higher, wage demands will be higher at all levels of unemployment. This would be represented by shifting the entire Phillips curve upward. Changes in expected prices move the Phillips curve up or down. So, to summarize, the Phillips curve (in the short term) is sloping. The entire curve shifts upward if price expectations increase. This has an important implication, because it means that as you move up the curve and inflation is higher, then if workers adjust their price expectations upward, that means you won't just move up the curve to reduce unemployment, but the curve will also start to shift upward. The curve will shift downward if price expectations fall..