the relationship between unemployment and inflation
The essay topic is “What is the relationship between unemployment and inflation? Please discuss the Phillip’s curve and why wage inflation increases as unemployment decreases. Additionally, discuss the criticisms to the relationship depicted in the Phillip’s curve.”
The Phillip’s Curve
By definition, inflation involves an increase in demand for products within an economy, while the levels of supply remain relatively constant, or increase at a slower pace. Consequently, as long as the people in an economy have access to jobs, they would be at liberty to spend more, which in turn increases the demand for different products within an economy. At high levels of unemployment, the lack of access to significant disposable income reduces consumption levels, and the demand for various products reduces.