Relationship Between Inflation And Unemployment:
Economics notes
Relationship Between Inflation And Unemployment:
➡️ Inflation and unemployment are inversely related, meaning that when one increases, the other decreases. This is known as the Phillips Curve.
➡️ When inflation is low, businesses are more likely to hire workers, leading to a decrease in unemployment.
➡️ When inflation is high, businesses are less likely to hire workers, leading to an increase in unemployment.
What is the relationship between inflation and unemployment?
The relationship between inflation and unemployment is known as the Phillips curve. It suggests that there is an inverse relationship between the two variables. When unemployment is low, inflation tends to be high, and when unemployment is high, inflation tends to be low.
How does inflation affect unemployment?
Inflation can affect unemployment in several ways. High inflation can lead to an increase in the cost of living, which can reduce the purchasing power of consumers. This can lead to a decrease in demand for goods and services, which can result in lower production and employment. On the other hand, low inflation can lead to an increase in demand for goods and services, which can result in higher production and employment.
Can governments use monetary policy to control the relationship between inflation and unemployment?
Yes, governments can use monetary policy to control the relationship between inflation and unemployment. For example, if inflation is high, the central bank can increase interest rates to reduce demand and lower inflation. However, this can also lead to a decrease in employment. Alternatively, if unemployment is high, the central bank can lower interest rates to stimulate demand and increase employment, but this can also lead to higher inflation. Therefore, governments must carefully balance their monetary policy to achieve their desired outcomes.