What is the relationship between inflation and unemployment?

What is the relationship between inflation and unemployment?

The relationship between inflation and unemployment is often described by the Phillips Curve, which suggests that there is an inverse relationship between the two.

Can you explain the Phillips Curve in more detail?

Sure! The Phillips Curve indicates that when inflation is high, unemployment tends to be low, and vice versa. This is because higher demand for goods and services can lead to more hiring, which drives up prices.

Are there any exceptions to this relationship?

Yes, there are exceptions, especially during stagflation, where high inflation and high unemployment occur simultaneously, challenging the traditional Phillips Curve.

How do central banks respond to inflation and unemployment?

Central banks often adjust interest rates to control inflation and influence employment levels. Lowering rates can stimulate the economy, while raising rates can help curb inflation.