Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 1: Q10. (page 17)

How are inflation and unemployment related in the short run?

Short Answer

Expert verified

Inflation and unemployment are negatively related in the short run.

Step by step solution

01

Inflation and unemployment

Inflation refers to increasing prices as an economy progresses. Unemployment refers to the unused potential of the country in terms of human resources.The two factors are growth indicators of an economy.

02

Relation between inflation and unemployment  in the short run

In the short run, inflation and unemployment are inversely related. This can be understood by the effect of an increase in aggregate demand. Higher aggregate demand leads to higher prices (inflation) as too much money is chasing few goods; these high prices encourage firms to increase their production and employ more people—the increase in hiring leads to a low unemployment level. Thus, higher inflation comes with a lower unemployment level.The Phillips curve gives this relationship.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Give the three reasons that explain why the division of labor increases an economy's level of production.

A 1996 bill reforming the federal government’s antipoverty programs limited many welfare recipients to only 2 years of benefits.

  1. How does this change affect the incentives for working?
  2. How might this change represent a trade-off between equality and efficiency?

The company that you manage has invested \(5 million in developing a new product, but the development is not quite finished. At a recent meeting, your salespeople report that the introduction of competing products has reduced the expected sales of your new product to \)3 million. If it would cost $1 million to finish development and make the product, should you go ahead and do so? What is the most that you should pay to complete development?

What are the three main goals of macroeconomics?

What items would you include to figure out the opportunity cost of a vacation to Disney World?

See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free