How does Unemployment and Inflation relate to Social Economics??
Unemployment and Inflation are both such terms that depicts the health of an economy. Our social economy is very much dependent on these two factors. Also, both Unemployment and Inflation are connected to each other. Let's know how does unemployment and Inflation relate to social economics.
Unemployment is a situation wherein a person is educated and capable to do work and is also actively looking for a job but is unable to find one. In this scenario, the person is willing to do a job but can't find a job due to many economical constraints. One such economical constraint can be ''inflation".
Inflation is a situation when the prices of goods and services rises indiscriminately. Due to inflation, people can't afford to buy goods and products. This reduces the purchasing power of the consumers. Also, the companies earn less amount of revenue during inflation. And when company or even the government finds hard to earn sufficient revenue then they cut down the salary of personnel, or charges more taxes in order to meet their expenditures.
So during inflation, unemployment in a country increases. This is because the economic conditions that are not favourable enough to provide employment to everyone.
Harrod - Domar model is a model of economic growth. According to this particular question, natural rate of growth comes in. For a situation of full employment various factors are needed such as natural resources availability, labour force availability, growth in terms of technology etc with smooth running of business i.e., without any fluctuations. However in real life condition, there can't be full employment and zero business fluctuations. Therefore, as per Harrod - Domar model, when natural growth rate ( g n ) > warranted growth rate ( g w ) , then in such a situation inflation occurs. According to Harrod Domar model, when g n = g w then equilibrium in employment arises.
Thus, if there's less unemployment and low inflation then social economic conditions will be favourable and good. In such an economy, employment will be seen which will have it's effects on people's standard of living, rise in national income, rise in purchasing power and thus more investments with low interest rate. And in an economy where there's unemployment and Inflation then social economic conditions will be just opposite and there you'll see less national income with low purchasing power. This will have negative effect on economy as a whole. Thus, a favourable condition for social economics is more employment with less inflation.
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