Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 1 - Part I - Ten Principles of Economics - Questions for Review: 10


Inflation and unemployment are inversely related in the short run. Many economists agree that this is caused by economic policies over yearly periods. This is directly related to the Phillips Curve.

Work Step by Step

The understanding of why this is true is methodical, starting with inflation goes as follows. an increase in the quantity of money in circulation stimulates rises in prices ( inflation) when this occurs people will demand more goods because they can afford a greater quantity. Upon understanding of the supply and demand procedure firms will rise the prices of goods and hire more workers to produce more goods. As they higher more workers unemployment falls. Thus the relationship is that of an inverse an increase in inflation causes a decrease in unemployment.
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