Interrelation of unemployment and inflation
The main forms in which macroeconomic instability manifests itself: unemployment and inflation, cycles.
The inflation is a depreciation of moneybecause of the excess in the economy of the quantity of monetary units over the sum of the value of goods formed in the sphere of circulation and a certain number of banknotes that are not provided with goods. There is a correlation between unemployment and inflation, which we will consider in more detail.
As a rule, inflation is expressed, in the general increase in prices, with the falling purchasing power of a monetary unit.
An important circumstance is that in addition toof total growth in value, the ratio of the value levels relative to each other can change, in other words, in the process of inflation, the cost of some goods can grow faster than others. Inflation, by definition, is a violation of the normal ratio of the amount of money that is circulating in the economy, as well as the mass of goods that are available on the market. With too rapidly increasing money supply in relation to the growth of the commodity mass, money is depreciated and becomes less valuable. There is a steady increase in prices, which is due to excessive growth in the money supply.
One of the causes of inflation is "inflationdemand ". Due to a lack of capacity, production can not meet the increased demand, which leads to an increase in prices for the same volumes of commodity production. Here we can clearly see the relationship between unemployment and inflation. Although the results are not immediately apparent.
Initially, at a low total cost,there is a high level of unemployment, while a significant share of production capacity is in inactivity, an increase in demand affects positively the use of reserves and does not lead to a large increase in prices. At the next stage, as demand grows in the economy, almost full employment is observed, while in some industries, resource stocks end, which leads to an increase in their value, as well as a rise in wages. Inflation has already appeared, and the labor market is still narrowing, which allows for a further increase in wages. Thus, the increased costs are shifted to consumers in the form of price increases. Further, the state of full employment is reached, now enterprises are forced to hire not qualified, not so productive workers, which is reflected by an additional increase in production costs and prices. There is a ubiquitous, full employment, but the economy can no longer increase production volumes of goods, while prices are also rising.
It should be noted that in the second stage, the relationship between unemployment and inflation comes to a certain equilibrium between employment and moderate inflation.
Another reason for inflation is "cost inflation." Let us analyze the relationship between unemployment and inflation in this situation. In the economy there are situations in which employment and the volume of goods decrease with increasing prices.
In such a situation, the demand for goods and, asconsequence, the workers are not at all excessive. The rise in prices causes an increase in costs per unit. goods. Increase of costs per unit. production at an unchanged price level leads to a reduction in output, i.e. to a reduction in the supply of goods, which determines the price increase.
Inflation of costs leads to a decrease in the actual volumes of services and products, and, consequently, to an increase in unemployment.
In practice, it is difficult to distinguish between the twoinflation without knowing its primary source, and therefore it is difficult to timely solve the problems of unemployment and inflation. But solving the problem of unemployment and inflation will contribute to the development of the economy of society.
Thus, macroeconomic instability, unemployment and inflation are much more important for the economy than it seems initially.