Unemployment And Unemployment Essay

The question has been around for many generations, are the two key elements to evaluating a whole economy closely related? Many have studied this topic and all have come out with various results and views as to what they feel defines a relationship between the two. After evaluating the subject, the points will be defined on what may or may not link the two together. Do inflation and unemployment work hand in hand? The results characterize these two as working with one another.

To obtain a better understanding of the two key elements, it would be adequate to explain what exactly the terms mean. Inflation is “the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling” (investopedia.com). It is an increase in a price over time. It is generally better for the economy to have a low and stable rate of inflation. That low rate also applies to unemployment.

Unemployment generates from people who do not have a job. They could be laid off, have gotten fired, or could be in between jobs. It is important to know that unemployment counts people who are able to work. It does not include people that cannot work due to disabilities, or acts along those lines. During a recession, the economy normally experiences a very high unemployment rate.

The Phillips Curve defines this relationship. Wages are a key portion of what makes up a company’s cost. When inflation changes (when the price’s go up), the company still spends the same price on supplies to keep their business running. The wages of employees are what changes and this is where unemployment comes into play.

Ironically, the Phillips Curve was developed by A.W. Phillips. He stated that inflation and unemployment have a stab...

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...“The new Keynesian Phillips curve implies that real marginal cost is the correct driving variable for the inflation process” (Walsh, 237). This curve study held by Keynesian economics infers that instead of purchasing company supplies at a low rate and not hiring more employees, companies take hits in the long run when inflation rises. Although the way the two curves are explained is different, this curve still follows the same guidelines as Phelps and Friedman’s curve.

After A.W. Phillips published his research of the Phillips Curve, many economists set out to explore the possible outcomes of the curve at different periods of time. Seen here, Phillips, Solow, Samuelson, Phelps, Friedman and others have their own opinions and data to back their explanations up. Many have concluded different theories that really depend of the time frame of the period being examined.