What is the relation between recession and unemployment?

Answer 1

A recession is defined as a period of general economic decline; specifically, a decline in the country's GDP (Gross Domestic Product) for two or more consecutive quarters. During a recession, the country's liquidity is not at its best. Companies cannot easily raise fresh capital for expansion of their business. Maintaining customer base and profit would be the main aim for companies during a recession. During a recession the company would do either or both of the following: 1. reduce unnecessary expenditure (cost optimization) and/or 2. reduce unnecessary work force (resource optimization) As a result of these two steps, the number of employees in the company may come down. resulting in unemployment. Similarly, the company would not be in a position to expand its operations. Hence the number of fresh employment positions that would be created by the company would also take a hit. This would also cause unemployment.

Answer 2

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

Answer 3

That's an easy one. It seems obvious that in times of full employment, everyone has money to spend and so prices go up and we have high inflation. In times of unemployment, ready cash is scarce and it's hard to sell non-essential goods. Prices go down and the rate of inflation decreases. Regardless of the rate of inflation, there will almost always be inflation. I'm not sure why, but perhaps if the banks gave no interest on money saved, money wouldn't be put in banks and the economy would stagnate. It's more complex than that tho'. I think another question is called for.

Interesting note: Newspapers talk about the increase or decrease in the Rate of Inflation. Do they realise that this is the rate of change of the rate of change of the rate of change of the value of money?

Inflation is the rate of change of the value.

The rate of inflation is the rate of change of inflation.

A change in the rate of inflation comes after that. To a year 12 student doing maths, it's the third derivative of a variable called "value of money".