Inflation vs Unemployment

Inflation is the constant increase of the average price levels. This is due to a demand pull. Too much total demand in the economy without an increase in aggregate supply is caused by increases in consumer, firms and government spending. This is also due to a cost push. Increasing costs is due to the increase in wages and salaries, improving profit margins and the increase of indirect tax rates by the government.
Inflation is also defined as the decrease in purchasing power of a national currency. Four indicators of this are excessive printing of currency, increased costs, increased national debt and increased taxes. The mass flowing in of money is actually hidden tax, so every new bill included in the circulation reduces the purchasing power. More currency is printed due to the debts that have to be paid thus becoming a cycle. Another domino effect is the increase in cost of raw materials leading to increase in labour and production costs which lead to the increase in prices of goods.
Inflation is popularly known to be unhealthy for a country’s economy. However, it has its advantages. First, a controlled growth of inflation may become a part of business growth. This growth in the economy would lead to lower unemployment rates. For instance, an increase in aggregate demand will result in an increase of price level and in real output. Suppliers will try to match the demand by producing more. This means that more labour is needed thus in the short term more people will be employed. Second, higher inflation “eats” away the real value of a currency. This means that the actual value of debts decrease, benefitting business and private individuals in debt. Third, it increases the value of stocks bought at an earlier value making the stocks have a higher selling price thus higher profitability. Fourth, the values of fixed assets could increase making companies more financially secure. It also causes people to have a “money illusion” or they feel richer.
There are two...