Inflation Versus Unemployment, Research Paper Example

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Research Paper

Understanding the Relationship of the two Most Influential Elements of Economy

In an economy, the relative condition of relationship between inflation and unemployment is called as the Phillips curve. This relationship is defined by the capacity of both factors to affect each other in an economic status. However, with the changing status of the modern economy today, the Phillips curve has been considered too simplistic by economists and thus has been used differently by economists from all over the globe.

Nevertheless, the logic behind the relationship of inflation and unemployment is quite easy to decipher. Relatively, when more are employed, then more are able to spend; when more are able to spend, the demand for products increase thus resulting to price inflation of the items in the market that are most demanded for. As a result to these adjustments, the monetary reserves of the economy increases relatively. This is the reason why investors intend to examine the economic behavior of a particular society before they actually decide to invest on the said areas. The people and their power to buy define so much as to how particular businesses would fare in a country or a certain locality. Notably, the more people are able to spend money, the larger the capacity of the businesses to grow.

True, when more people have the right amount of money to spend, then their desires or demands for more items offered in the market would increase. This would provide the company owners a chance to adjust their pricing attitude depending on the market’s manipulation of the situation. It is most often than not that unemployment creates the initial movement in the economy before allowable inflation is assumed. The government is often given the authority to control inflation rate fluctuations. Such control comes from basing the situational changes on the society and the companies’ demand for higher prices as well.

To be able to keep the balance for a long time, the government then tends to distribute more money to the market to provide them with the right capacity to spend. The imbalance of the two elements only occur when people who work desire to save more than spend. This often occurs when future assumptions of economic imbalance have been forecasted earlier. Nevertheless, when no such matter has been considered, then the market is expected to demand for more. This is the reason why companies often take advantage of low-unemployment rate in the country to produce new technologies, new gadgets and other high-end products that are not necessarily basic nor necessary for survival. Appealing to the ‘wants’ of the market, the companies intend to entice the market to buy more especially that they have the money to use to attain such items from the businesses.

On the other hand, when unemployment rate increases, businesses intend to lower down the price of the items they offer in the market to make sure that their products would sell even in the midst of hard economic status for those who might have limited financial resources. The fluctuations in the economy further present the correlation between unemployment and price inflation through distinctively indicating how each of these elements define the price rate that characterizes a particular economy. In a way, it could be realized that in the existence of inflation, it could be analyzed how a market is also expected to respond to the matter positively as such changes in price range have been defined based on how much the people are expected to spend in relation to a particular span of time.

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