Inflation and unemployment which is worse
INFLATION vs UNEMPLOYMENT
Which is the Bigger Evil ?
Firstly, what is inflation and what is unemployment ? Unemployment occurs when a person who is actively searching for employment is unable to find work. Unemployment is often used as a measure of the health of the economy. The most frequently cited measure of unemployment is the unemployment rate.This is the number of unemployed persons divided by the number of people in the labor force, while inflation is the rate of change in the general level of prices, expressed usually as an annualized percentage
Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum. As inflation rises, every dollar will buy a smaller percentage of a good. For example, if the inflation rate is 2%, then a $1 pack of gum will cost $1.02 in a year.
Central Banks and governments often face a choice between reducing inflation or reducing unemployment. Which imposes the greatest cost on society - inflation or unemployment?
Inflation imposes several costs on Society
Inflationary growth is unsustainable. High inflation is often a sign the economy is overheating (demand growing faster than supply). This kind of boom is often followed by a bust (recession) This occurred in UK in Lawson boom of 1980s - inflation rose to 10% due to high growth and when the government tried to reign in inflation, it lead to the 1991 recession and higher unemployment. Therefore, an inflationary boom can lead to a recession. Targeting a low rate of inflation helps to keep economic growth sustainable. Therefore, low inflation can help avoid recession and prevent a sudden rise in unemployment.
Inflation discourages investment. High and volatile rates of inflation can discourage firms from taking long-term investment decisions. This is because of the uncertainty and confusion around future revenues and profits. Therefore, it is argued countries with higher
Which is the Bigger Evil ?
Firstly, what is inflation and what is unemployment ? Unemployment occurs when a person who is actively searching for employment is unable to find work. Unemployment is often used as a measure of the health of the economy. The most frequently cited measure of unemployment is the unemployment rate.This is the number of unemployed persons divided by the number of people in the labor force, while inflation is the rate of change in the general level of prices, expressed usually as an annualized percentage
Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum. As inflation rises, every dollar will buy a smaller percentage of a good. For example, if the inflation rate is 2%, then a $1 pack of gum will cost $1.02 in a year.
Central Banks and governments often face a choice between reducing inflation or reducing unemployment. Which imposes the greatest cost on society - inflation or unemployment?
Inflation imposes several costs on Society
Inflationary growth is unsustainable. High inflation is often a sign the economy is overheating (demand growing faster than supply). This kind of boom is often followed by a bust (recession) This occurred in UK in Lawson boom of 1980s - inflation rose to 10% due to high growth and when the government tried to reign in inflation, it lead to the 1991 recession and higher unemployment. Therefore, an inflationary boom can lead to a recession. Targeting a low rate of inflation helps to keep economic growth sustainable. Therefore, low inflation can help avoid recession and prevent a sudden rise in unemployment.
Inflation discourages investment. High and volatile rates of inflation can discourage firms from taking long-term investment decisions. This is because of the uncertainty and confusion around future revenues and profits. Therefore, it is argued countries with higher