Question

Why do some macroeconomists believe there is a trade-off between unemployment and inflation (that is, if you want to reduce inflation, you will have to accept a rise in unemployment, and if you want to reduce unemployment, you will have to accept higher inflation)?

Answer 1

i k. There is trade-off between unemployment and inflation or rate of inflation this was said by A.W. Phillips. He researched in 1950s and presented analysis of wages in Britain and reached on conclusion conclusion that that theire is the inverse relationship between inflation and un- employment. a 14% 12+ 1cyl 1 Inflation Rate 11 PHILLIPS CURVE 67 N 2x 47 Gr. ay. Tox. Tex Unemployment hate % - some statiments can support this statement :- 1. When employment rate will high, then people will have money to buy gools & services or we can say Aggregate demand in the economy will be high hence businesses will produce more gools and survices faccording to demand ande Supply analysis) then employment will again grow hence due to excess demand there will be inflation in economy. . On the other it inflation is below average in an economy it means people conot have sufficient money to by things, hence due to reduced demand, businesses will stop producing hence unemployment will rise. V

Most of macroeconomist believed in this concept unless and untill phenomena called STAGFLATION which means high inflation as well high unemployment in the economy, came into light. Hence Before this only Demand factor used to considered by economist while suceding vany economic analysis but after stagflatio I which occured in developed countries during oil crisis etc), supply factor also got importance which deciding any market management, which that is supply side economies famously known as Reganomics”.