Top Answer
User Avatar
Wiki User
Answered 2009-11-18 02:05:35

There has been an inverse relation between rate of inflation and the rate of unemployment in an economy. The more the entrepreneur extends the employment opportunity the more he has to pay to that particular factor of production and the more payment to factor of production the increase in the cost of producing a unit will be observed and in order to maintain the profitability of the product the entrepreneur will inflate the price of that product. A similar process will be observed through out the economy when the government intends to create job. The price of products or services, where the workforce is installed, will increase hence an increase in the rate of inflation will be visible through out the economy.

It can be concluded from the aforesaid explanation that when a government intend to lower down the rate of unemployment it had to bear the increase rate of inflation in the national economy.

User Avatar

Your Answer


Still have questions?

Related Questions

What is the relationship between unemployment and inflation?

The relationship between Inflation and the Unemployment Rate is known as the Phillips Curve.

What is the Phillips curve?

In economics it's the inverse relationship between inflation and unemployment.

Describe and give reasons for the relationship that exists between RGDP inflation and umeployment?

It is an inverse relationship. As inflation increases, unemployment decreases. This can be shown by the Phillips curve

Relationship between business cycle inflation and unemployment?

ml;m[l]l]l ][l

What does the Phillip's Curve illustrate?

A graph that shows that there is a relation between unemployment and inflation: One can either have a high inflation and low unemployment or low inflation with high unemployment.

What are the relationship between inflation and deflation?

inflation is a situation when prices persistantly rise in the country on the other hand deflation is when there is excess supply of good in a country when we remove inflation then unemployment creat

If inflation falls why would unemployment rise?

When economists look at inflation and unemployment in the short term, they see a rough inverse correlation between the two. When unemployment is high, inflation is low and when inflation is high, unemployment is low. This has presented a problem to regulators who want to limit both. This relationship between inflation and unemployment is the Phillips curve. The short term Phillips curve is a declining one. Fig 2.4.1-Short term Phillips curveThis is a rough estimation of a short-term Phillips curve. As you can see, inflation is inversely related to unemployment. The long-term Phillips curve, however, is different. Economists have noted that in the long run, there seems to be no correlation between inflation and unemployment.

Which way does the Phillips curve slope?

The Phillips Curve is an inverse relationship between the rate of unemployment in an economy and the inflation. The lower the unemployment is, the higher inflation we get! Thus we can say that the Phillips Curve is negative (downward sloping)

Until the stagflation of the 1970s the Phillips curve seemed to prove an inverse relationship between inflation and what other variable?


What do you mean by Philip curve?

Phillips curve defines the relationship between the changes in the rate of employment towards inflation. This is an economic concept that shows how unemployment affects and raises the rate of inflation.

How are inflation and unemployment relate.?

Inflation and unemployment are inversely related.

What is the relationship between inflation and money supply?

There is nearly a perfect, 1:1 relationship between inflation and the money supply. Generally, printing more money is the source of inflation.

How are inflation and unemployment related in the short run?

High inflation means low unemployment

Which was the decade of high inflation and high unemployment?

Which was the decade of high inflation and high unemployment

How is the relationship between inflation and population growth?

what is the relation inbetwin inflation and population

What is relationship between inflation and recession?

The relationship between inflation and recession is that a recession will cause inflation to go down. The reason for this is due to their being less money being spent due to the recession.

What are the effects of unemployment and inflation in Nigeria?

Unemployment and inflation are two intricately linked economic concepts. Over the years there have been a number of economists trying to interpret the relationship between the concepts of inflation and unemployment. There are two possible explanations of this relationship - one in the short term and another in the long term. In the short term there is an inverse correlation between the two. As per this relation, when the unemployment is on the higher side, inflation is on the lower side and the inverse is true as well. This relationship has presented the regulators with a number of problems. The relationship between unemployment and inflation is also known as the Phillips curve. In the short term the Phillips curve happens to be a declining curve. The Phillips curve in the long term is separate from the Phillips curve in the short term. It has been observed by the economists that in the long run the concepts of unemployment and inflation are not related. As per the classical view of inflation, inflation is caused by the alterations in the supply of money. When the money supply goes up the price level of various commodities goes up as well. The increase in the level of prices is known as inflation. According to the classical economists there is a natural rate of unemployment, which may also be called the equilibrium level of unemployment in a particular economy. This is known as the long term Phillips curve. The long term Phillips curve is basically vertical as inflation is not meant to have any relationship with unemployment in the long term. It is therefore assumed that unemployment would stay at a fixed point irrespective of the status of inflation. Generally speaking if the rate of unemployment is lower than natural rate, then the rate of inflation exceeds the limits of expectations and in case the unemployment is higher than what is the permissible limit then the rate of inflation would be lower than the expected levels. The Keynesians have a different point of view compared to the Classics. The Keynesians regard inflation to be an aftermath of money supply that keeps on increasing. They deal primarily with the institutional crises that are encountered by people when they increase their price levels. As per their argument the owners of the companies keep on increasing the salaries of their employees in order to appease them. They make their profit by increasing the prices of the services that are provided by them. This means there has to be an increase in the money supply so that the economy may keep on functioning. In order to meet this demand the government keeps on providing more money so that it can keep up with the rate of inflation.

What is the relationship between CPI and inflation?

CPI is the indicator of inflation in any country.If CPI is high it means inflation is high.

Explain the short-run Philips curve and long-run Philips curve?

The Phillips Curve is the negative relationship between unemployment and inflation. If you want to have less unemployment the cost is inflation. In this sense, you can also say that there is a positive relationship between output and inflation, because output is negatively correlated with unemployment (firms need workers to produce more). The first thing you have to kept in mind is that the Phillips relation is only true for shocks in Aggregate Demand. For instances, when the U.S. suffered from stagflation on the 70s (inflation and low output - or inflation and higher unemployment) the evidence showed that not always the Phillips curve are right. In this case, the oil shocks affected suppliers costs and thus the Aggregate Supply. Given this, the Phillips Curve holds in the short-run for any shock on AD. In the long-run the production (unemployment) of an economy depends on its inputs abundance and their efficiency, independently of the nominal variables (like prices, inflation, etc.). So the Phillips curve is an horizontal line, the natural unemployment is independent of the inflation! Gustavo Almeida, Portugal,

Can unemployment and inflation coexist?


How do monetary policy control inflation?

Monetary policy can have an impact of inflation. The ideal state of the economy is a balance between inflation and unemployment at 4.3% which is only seen in a wartime economy.

What is the relationship between unemployment and GDP?

if you have a 1 % increase in unemployment then you have a 2% lose in GDP.

What is the relationship between employment and inflation?

Wage costs are among the costs that rise in response to higher prices. When unemployment is low, employees can hold out for full compensation for the higher prices, and raises above that. When unemployment is high, however, the employees will have to settle for less, and so costs do not rise as fast as prices. From either point of view, then, high unemployment means that costs rise less rapidly than prices, so that inflation slows down. On the other hand, low unemployment will cause costs to rise faster than prices, with the result that inflation speeds up. In between the two extremes is a rate of unemployment just high enough that costs and prices rise at the same level, so there is no tendency for inflation either to speed up or slow down. This unique rate of unemployment is called the NAIRU, short for non-accelerating inflation rate of unemployment

What is the relationship between unemployment and economic growth?

Economic growth and unemployment share an inverse relationship, this is as one rises the other falls.

How are inflation and unemployment related in Singapore?

Changes in wages imply changes of inflation in Singapore or most other countries. The Philips curve shows how inflation and and unemployment is related.