This is a curve that shows that there is an exploitable trade-off for the government when wishing to achieve employment or inflationary objectives. Therefore, the curve shows that changes in the level of unemployment have a stable statistical effect on the level of inflation in an economy.
It works this way because if there is a positive AD shift there will be a subsequent increase in demand for labour as growth puts pressures on firms to meet higher output demands. This causes the pool of valued and skilled labour to fall and therefore firms must compete over these scarce workers and this puts pressure on wages to rise. As workers realise they are more valued they hold bargaining power and drive up nominal wages. But as much as this is a benefit to workers, it causes firms production costs to rise and these costs eventually get passed onto consumers in the form of higher prices. Leading to the inverse relationship between unemployment and inflation. Below is a graphical depiction of the curve.
