Question

If we have good economic growth happening and there is relatively low unemployment (this was taking...

If we have good economic growth happening and there is relatively low unemployment (this was taking place in Canada and the US in 2018 and 2019…) – what would be the typical impact on inflation?
Secondly, what should we expect as far as inflation is concerned when many people are out of work (similar to what is taking place right now in 2020 due to COVID)?

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Answer #1

In short-run, there exists an inverse relationship between the unemployment rate and the inflation rate.

When unemployment rate rises, inflation rate tends to fall and vice-versa.

So,

If we have good economic growth happenning and there is relatively low unemployment then inflation would be high or inflation would be increasing.

When many people are out of work then unemployment rate in the economy would be rising.

So,

In such scenario, inflation would be low or inflation would be decreasing.

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