Inflation and unemployment

Definition

Two key measures of economic health. Inflation is the general rise in prices over time that reduces purchasing power. Unemployment is the percentage of the labor force that is actively seeking but unable to find work. These two indicators often have an inverse relationship.

Examples

  • 1970s stagflation, when the U.S. experienced both high inflation and high unemployment simultaneously
  • The Federal Reserve raising interest rates to combat inflation, even at the risk of increasing unemployment
  • Hyperinflation in Germany in 1923, when people needed wheelbarrows of cash to buy bread

Related Terms

Fiscal and monetary policy Federal reserve Interest rates Gdp

Study This Concept

Practice inflation and unemployment with free review games in these units:

Economics Unit 8: Economic Indicators and Policy