Evaluate and compare the problems associated with inflation and unemployment

Expert Solution

Inflation is the increase in price levels of goods leading to increased cost of living

Problems associated with inflation:
1. It indicates that the economy is overheating where demand is growing than supply leading to recession
2. Because of inflation, the net disposable income reduces as people have to spend more money leading to reduced saving and investment
3. High inflation is associated with reduced profits which would discourage investment
4. Reduces the purchasing power of people

Unemployment is the reduction in employment levels because of reduction in growth and other natural causes
Problems associated with unemployment:
1. Reduces income for people
2. Reduces ability to purchase goods which in turn reduces demand for good leading to reduced economic growth
3. Increase burden on government to provide unemployment benefits
4. Would lead to labor migration in search of job to other places affecting the growth
5. Would cause social problems like high crime rates leading to reduction in social harmony
6. Reduce the quality of life

When the affects of unemployment and inflation are compared, the unemployment is more threatening for a society. As inflation can be controlled by monetary and fiscal policies but unemployment would have more negative social impacts, might take more time to create employment opportunities. So policies towards creation of employment would increase demand for goods which would keep people busy and encourage towards earning more, leading to increased GDP for a nation.

Rahul Sunny answered 2 years ago

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