In today's world, leaders of economy are always trying to wisely solve the issues of inflation and unemployment that they are constantly facing. In most cases, Economists are required to trade-off between inflation and unemployment. According to many economists, an ideal situation would be to achieve both a low level of unemployment and low level of inflation. However, it seems that as one increases the other one decreases respecting an inverse proportionality relationship as suggest by the famous economist Philip. In this paper, both inflation and employment are discussed in the aim to examine and evaluate which is a greater evil. .
To begin with, inflation refers to the continuous increase in the price of goods and services. The latter is due to several factors: natural factors like bad weather conditions that affect the production of the food and consequently leads to shortage in supply with respect to the demand, hence increase in goods prices. Another factor would be humane- made, resulting in rise of prices however not all prices are rising, different products and services have different rates of price change. Inflation is measured using the consumer price index which is a measure to reflect changes in the price level of consumer goods and services, purchasing power of the currency we spend, and the total cost of specific goods and services. Inflation can be divided into two categories: Demand-Pull inflation which is due to excess in demand and Cost-push Inflation which is due to an increase in per-unit production costs and rising costs of raw materials or energy supply. In the following section, Inflation is analyzed in terms of advantages and disadvantages that can be obtained from it.
Often, Inflation carries strong negativity attached to it. It has direct impact on the growth rate, the growth rate inflationary becomes unsustainable and is usually followed by a recession. Canada experienced a high inflation in the 70s and early 80s where the percentage of inflation reached 12.