Economics Sustainability Questions
The relationship between inflation and unemployment is often described by the Phillips curve. According to the Phillips curve, there is an inverse relationship between the two variables. When inflation is high, unemployment tends to be low, and vice versa. This relationship is based on the idea that when the economy is growing rapidly and demand for goods and services is high, businesses may struggle to find enough workers, leading to low unemployment but potentially higher inflation. On the other hand, during periods of economic downturn or recession, unemployment tends to be high as businesses reduce their workforce, resulting in lower inflation. However, it is important to note that this relationship is not always consistent and can be influenced by various factors such as supply shocks, government policies, and expectations.