What is the relationship between unemployment and inflation? What are some of the theories behind the relationship of unemployment and inflation? Do you find that the theories are based on the types of unemployment?
If unemployment rates are low inflation should occur. Because consumers would be earning and later using that income to purchase goods and services when too much spending is happening in an economy. Inflation is inevitable. If unemployment rate is high spending is high people can't afford to be enough due to lack of money. Therefore more jobs are layed off an inflation is thought to come down. Because of less spending in the economy. That is why a nation usually targets their unemployment rates at NAIRU (Non-accelerating inflation rate of unemployment), this is the lowest unemployment without causing inflation. For this reason, you usually see nations wanting some unemployment that is why government benefits are given> Mainly to avoid problems such as inflation.