ECO 100: Principles of Economics
Question Description
Unemployment and Inflation
Two of the biggest issues inmacroeconomics are inflation and unemployment. Policymakers would liketo keep both of these measures low. Often, however, there is a tradeoffbetween the two. A strong economy that lowers unemployment can putupward pressure on prices. A weak economy that lowers inflation canincrease unemployment.
We currently have the benefit of bothvery low unemployment and inflation. But things could change and it’sgood to have policy plans in place before either of these problems getstoo bad.
Imagine that you are in charge of macroeconomic policy. Answer these questions, being sure to explain your answers.
- What are some of the problems, difficulties, or hardships caused by unemployment?
- What are some of the problems, difficulties, or hardships caused by inflation?
- If you had to make a choice today between a policy that wouldhead off increases in inflation or increases in unemployment, which onewould you choose?
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