Is there a relationship between employment rate and inflation rate?

In the short run, the Phillips curve has a downward slope, indicating a possible tradeoff between inflation and unemployment. In the long run the Phillips curve is vertical, indicating that no such tradeoff is possible. So,which is right the long run or the short run?

Is there a relationship between employment rate and inflation rate?credit bureau

I think the idea is that it takes a while for people to know and to adjust to inflation, so that until the time arrives, you can get an increase in output with an increase in money.

For example, suppose I set my salary once a year. The Fed increases the money supply and there is some increase in prices. My real wage (w/p) falls. The falling real wage increases employment and output. There is a short term increase in output and wa la we have a downward sloping Phililps curve.

But I am not happy with my salary, so I get a raise. The real wage (w/p) goes back to where it was before and now we just have inflation. So, the Phillips curve is now vertical again.

The exact amount of increase depends a bit on how the money circulates, who is able to be the most flexible in setting wages and prices, and who knows what the fastest.

Unfortunately for me, I don%26#039;t believe the story above. I am a real Keynesian, and don%26#039;t believe in a Philips curve at all. It seems silly to me that a recession is caused by the real wage being to high, and in fact there is no evidence that supports it. Instead, I believe that the economy is constantly being stalled by inequality and an excess of savings and investment and inadequate demand. The fed and government increase aggregate demand until there is inflation, not after it, although there is some error which results in a bit of optimal inflation.

Is there a relationship between employment rate and inflation rate?

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You can%26#039;t say one is absolutely right and the other is wrong. It depends on situation. In the short run they are strongly related. In the long run they aren%26#039;t as much. Few things in economics are the same in the short run and the long run.|||I have never heard of the Phillips curve before seeing your question (I thought Phillips was a screw driver).

Consider this ... when there is high employment, people can shop around for a better job, they may be Ok on money, either doing a better job of savings, or spending more on material goods ... that increases demand, which could increase inflation.

When a lot of people are unemployed, then a lot of people cannot afford anything other than the most basic needs ... food, lodging, maybe some go homeless, which means less people buying stuff, which means a recession, so opposite of inflation.

I looked up %26quot;Phillips curve%26quot; and found it agrees with my analysis. http://en.wikipedia.org/wiki/Phillips_cu...

Incidentally, while I recognize that our economy runs on Keynsian theories, I much prefer Georgist philosophy of economics.