Unemployment vs. Inflation

Topics: Economics, Unemployment, Inflation Pages: 4 (1140 words) Published: May 1, 2013
Inflation vs. Unemployment
Inflation and unemployment are two key elements when evaluating the economic well-being of a nation, and their relationship has been debated by economists for decades. Inflation refers to an increase in overall level of prices within an economy; it means you have to pay more money to get the same amount of goods or services as you acquired before and the money becomes devalued. For example 10 dollars seventy years ago had the same buying power that 134 dollars have today (Bureau of Labor Statistics). This is the result of the government printing more and more money and each individual dollar being worth less and less, comparatively. Unemployment refers to the amount of people that are available or eligible to work, but are unable to find employment. This is measured by the unemployment rate, which is the percentage of the labor force that is unemployed. As inflation rises, unemployment decreases in the short run, but is generally unaffected by inflation in the long run. Unemployment is harmful to both individuals and society as a whole. obviously when an individual is unemployed, he or she is unable to earn money and thereby their standard of living decreases. In terms of the economy as a whole, unemployed workers are seen as wasted production capability. These are people that could be working and contributing to the GDP, but instead are having the opposite effect. Unemployed people also are far less likely to spend money, reducing the overall wellbeing of the economy as well. A certain level of unemployment is normal and natural though.

In the past economists used the “Phillips Curve” to show an inverse relationship between inflation and unemployment. This curve was based on Economist William Phillips’ findings; when unemployment was high, wages increased slowly; when unemployment was low, wages rose rapidly...the lower the unemployment rate, the tighter the labor market and, therefore, the faster firms must raise wages to attract...
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