Question

6. What kind of trade-off exists between unemployment rate and inflation rate? Explain
your answer with appropriate concept? Also illustrate the costs of inflation for the
society?
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Answer 1

Answer:

If the economy experiences a rise in AD, it will cause increased output.

As the economy comes closer to full employment, we also experience a rise in inflation.

However, with the increase in real GDP, firms take on more workers leading to a decline in unemployment ( a fall in demand deficient unemployment)

Thus with faster economic growth in the short-term, we experience higher inflation and lower unemployment

Explanation:

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