Relationship Between Inflation and Unemployment :: Economics

Inflation and unemployment are two key elements when evaluating a whole economy and it is also flourishing to get those figures from National Bureau of Statistics when you want to evaluate it. However, the relationship between them is a controversial topic, which has been debated by economists for decades. From some famous economists such as capital of Minnesota Samuelson, Milton Freidman etc to some infamous economists, this topic received a lot of attention. However, it is this debate that makes the thinking about it evolve. In this essay, the controversial topic will be discussed by viewing different economists opinions on that according to time sequencing. But before started, it is worthy getting a better understanding of the terms, inflation and unemployment.Inflation refers to an plus in overall level of prices within an economy. In simple words, it means you have to pay more money to get the same amount of goods or services as you acquired before. By contrast, the term unemp loyment is easier to understand. Generally, it refers to those people who are available for work but do not find a work. And unemployment position, which is the percentage of the lying-in force that is unemployed, is usually used to measure unemployment (Mankiw 1992).The debate of the relationship between inflation and unemployment is mainly based on the famous Phillips Curve. This curve was first-class honours degree discovered by a New Zealand born economist called Allan William Phillips. In 1958, A. W. Phillips published an article The relationship between unemployment and the rate of change of money take in the United Kingdom, 1861-1957, in which he showed a negative correlation between inflation and unemployment (Phillips 1958). As shown in figure 1, when unemployment rate is low, the inflation rate tends to be high, and when unemployment is high, the inflation rate tends to be low, even to be negative. Figure 1 Phillips CurveTwo years later, economists Paul Samuelson and Robert Solow, who are the most infusive representatives of Keynesian School, also published an article, showing the same negative correlation between inflation and unemployment, based on the United States economic data (Samuelson and Solow 1960).