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Compare and contrast the damaging consequences of rising unemployment versus rising inflation? Be sure to define...

Compare and contrast the damaging consequences of rising unemployment versus rising inflation? Be sure to define unemployment and inflation and explain how they are measured. Is one worse than the other?

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Answer #1
  • Unemployment has a negative impact on potential economic growth.
  • It also leads to fall in consumption and increases government spending (benefit payments). It leads to more crime and vandalism.
  • There is less consumption of inelastic goods and quality of life gets reduced.
  • On the other hand, inflation increases the cost of living, interest rates and thus cost of borrowing.
  • It leads to fall in real incomes and there is a risk of wage inflation.
  • Unemployment is calculated by dividing the number of unemployed by the number of employed in the labor force.
  • When a person is unable to find work which is actively searching for it we term it as unemployment.
  • When the general price level increases and in turn decreases the purchasing power of money, it is termed as inflation.
  • It is measured by the yearly percentage change in consumer prices.
  • Unemployment as well as inflation makes people unhappy. But unemployment makes life miserable than inflation and by the fact that inflation at least has several constructive effects, thus unemployment is worse than the inflation.
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