This paper discusses the short-run tradeoff between inflation and unemployment. Although this tradeoff remains a necessary building block of business cycle theory, economists have yet to provide a completely satisfactory explanation for it. According to the consensus view among central bankers and monetary economists, a contractionary monetary shock raises unemployment, at least temporarily, and leads to a delayed and gradual fall in inflation. Standard dynamic models of price adjustment, however, cannot explain this pattern of responses. Reconciling the consensus view about the effects of monetary policy with models of price adjustment remains an outstanding puzzle for business cycle theorists. Several years ago I gave myself a peculiar assignment: I decided to try to summarise all of economics in ten simply stated principles. The purpose of this task was to introduce students to the economic way of thinking in the first chapter of my textbook Principles of Economics. I figured if God could boil all of moral philosophy down to ten commandments, I should be able to do much the same with economic science. Most of the ten principles I chose were microeconomic and hard to argue with. They involved the importance of tradeoffs, marginal analysis, the benefits of trade, market efficiency, market failure, and so on. I allocated the last three principles to macroeconomics. The first of these was 'A country's standard of living depends on its ability to produce goods and services', which I viewed as the foundation of all growth theory. The second was, 'Prices rise when the government prints too much money', which I took to be the essence of classical monetary theory. The last of my ten principles is the subject of today's lecture: 'Society faces a short-run tradeoff between inflation and unemployment'. Perhaps not surprisingly, this statement turned out to be controversial. When my publisher sent out the manuscript for review, a few readers objected