How does the cost of reducing inflation increase unemployment?

Answer 1

Inflation means that the cost of "stuff"(food, cars, housing, whatever) is going up. Its going up because there is strong demand for those things and people have plenty of money to buy them. If you (as a government or central bank) are concerned that things are getting too expensive, too fast then you need to reduce inflation. You need to slow down the economy and reduce the ability of people to buy so many of those things. You can slow the economy by raising interest rates and making it harder to borrow money. Less money sloshing around = less stuff being bought. The downside of slowing the economy and reducing the ability of people to buy so much stuff is that there's less work for all the people who make it. Lower inflation equals higher unemployment.