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As jobs migrate to Asia, equilibrium unemployment in Europe may rise and inflation may fall. Do...

As jobs migrate to Asia, equilibrium unemployment in Europe may rise and inflation may fall. Do you think that the ECB and governments will seek to increase inflation to get unemployment down?

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As jobs migrate from all over the world to Asia, especially from Europe due to lower labour costs of Asia, the equilibrium unemployment in Europe will rise and as a result the income of people will fall leading to lower demand and lower inflation. This can be a major problem for Europe as falling inflation and increasing unemployment can lead the economies into vicious cycle of depression. To come out of the cycle, the ECB needs to create jobs which will only be possible if there is some decent amount of inflation in the economy. For inflation to be there, the ECB needs to boost the demand for domestic goods either by domestic consumption or by boosting their exports. Hence, the ECB has to undertake policies of monetary expansion in order to increase inflation and reduce unemployment.

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