Question

Unemployment and Inflation Tradeoff

You go home after studying macro and explain the relationship between unemployment and inflation to your grandma. She laments –“sounds like a choice between two evils?” Why would she say this? Assuming she is right, which one would you rather have and why? This should not be a one phrase answer; please, discuss.

Answer 1

Unemployment and inflation are both considered evils because both create economic hardships for people. In unemployment, one does not have any income to pay for the necessities of life. In inflation, there is an increase in the general price level and fall in the value of income and wealth of people. So, people feel pooer because of inflation.

I would rather choose inflation rather than unemployment. In unemployment, I will have no income and it will be very difficult to meet necessities of life. In inflation, the price level rises; however, if I am employed I wills till be able to survive in inflation. However, it is very difficult to survive without a job.