Question

Some people say that since inflation can be reduced in the long run without an

increase in unemployment. Others believe that a low level steady rate of

inflation should be the goal to eliminate unemployment. What are the pros and

cons of these two arguments? What, in your opinion, are good long-run goals

for reducing inflation and unemployment?​

Answer 1

Answer:

In the last section, we saw how stabilization policy, together with changes in expectations, can produce the cycles of inflation and unemployment that characterized the past several decades. These cycles, though, are short-run phenomena. They involve swings in economic activity around the economy’s potential output.

This section examines forces that affect the values of inflation and the unemployment rate in the long run. We shall see that the rates of money growth and of economic growth determine the inflation rate. Unemployment that persists in the long run includes frictional and structural unemployment. We shall examine some of the forces that affect both types of unemployment, as well as a new theory of unemployment.