[Herr]

As per the title, assume only 1 could be done at a time, which would you say was more important and why?

[internetguru]

I recommend doing the smart thing and leaving unemployment to private businesses. In order to prevent inflation the Bank of England has to stop lending money at stupid prices which is basically giving free money to banks. They also have to stop lending non existent money, I suggest raising the amount of capital required to lend money.

[QwertyG]

Phillips curve mate

imo i would pick controlling inflation because low unemployment can cause inflation.

[meenu89]

Inflation.
Government should strive to provide a sound economic framework for private sector to create employment.

[Anon420]

Controlling inflation is my view, most certainly.

[antimilitarist]

Going to have to disagree with everyone and say unemployment. Controlling inflation doesn't necessarily make prices affordable which they are likely not to be if everyone is out of work.

[Classical Liberal]

It depends. But for the most part controlling inflation is more important as in the long run there is no trade off between employment and stable prices, the latter is a precursor to the former.

[Martyn*]

(Original post by meenu89)
Inflation.
Government should strive to provide a sound economic framework for private sector to create employment.

It should not be up to private enterprise to create employment. The government should provide a moderate amount of centralised organisation so that employment is created not just in the private sector but also in the public sector as well.

[meenu89]

(Original post by Martyn*)
It should not be up to private enterprise to create employment. The government should provide a moderate amount of centralised organisation so that employment is created not just in the private sector but also in the public sector as well.

Yes, but in the main it should be the private sector responsible for creating employment.
It will be the private sector after all which would create the wealth.

[JCC-MGS]

Unemployment. In our current situation a little inflation isn't even a bad thing, it decreases the real value of debt while increasing home equity so it's something both classes can feel positive effects from. It's not like 4 or 5% inflation is going to turn into hyperinflation the next day. Look at unemployment on the other hand and you have large swaths of the country economically inactive and that economic inactivity can have disastrous consequences on consumer spending, forces the government to spend more on welfare while receiving less revenue because people are falling out of the tax bracket, leads to higher crime rates, and generally makes people miserable until it tips over the edge and the economy totals. US fiscal stimulus plans haven't plunged America into a Weimar-esque nightmare of inflation, monetarist bull**** about inflation while unemployment is growing and growing is nothing more than a political gambit

[MagicNMedicine]

In general inflation but I think sometimes people overstate the benefits of having say 2% inflation rather than 3%. Inflation becomes dangerous when it makes prices lose their information value as signals, which is the point at which consumers can no longer make sense of prices, and at low levels of inflation it doesn't make much difference. We've had 4 and 5% inflation in the past year or so and it's not harmed price signalling, and it's had the benefit of correcting 'sticky down' prices of things like wages which have needed to adjust downwards in real terms. If we had 2% inflation and pay freezes that would have taken years, but say a three year pay freeze in the public sector with inflation 4% a year means around a 13% real terms downwards adjustment.

I'd prioritise inflation targeting in good times, then in a recession or slow recovery I'd allow loose monetary policy as long as inflation was below 7%, once it hit 7% I'd tighten quickly to pull the sting out of it before it accelerates quickly.

The Phillips Curve is a useful model for learning about the interaction between prices, output and wages, but in the real world you often don't see that relationship because the supply/demand conditions in individual markets for important goods like energy, petrol, food etc influence inflation of the cost of living a lot. If you look at the UK since 1979 there is absolutely no Phillips Curve relationship, we had high unemployment and inflation fluctuating up and down in the 1980s, then high unemployment and low inflation in the early/mid 1990s, then low unemployment and low inflation from the late 1990s to the late 2000s, and since the financial crisis, high unemployment and rising inflation again.

[MagicNMedicine]

(Original post by JCC-MGS)
US fiscal stimulus plans haven't plunged America into a Weimar-esque nightmare of inflation, monetarist bull**** about inflation while unemployment is growing and growing is nothing more than a political gambit

I agree with this, considering all the hype from Republicans and Conservatives about QE in the USA and UK being Mugabe economics that would trigger a spiral of hyperinflation, inflation has actually been falling since then.

[PicardianSocialist]

You can have low unemployment and low inflation.

[billydisco]

Ok I must admit can someone please answer the following?

Why does inflation matter? The reason inflation increases is because there is more money in the system. Prices go up but as there is more money in the system we're no worse off because we can afford it.

In other words, inflation happens because "we become richer" with more money in the system, so of course prices will increase.

We'd only be screwed if prices increased more than the money supply increased- then we'd be poorer.

[Steevee]

(Original post by billydisco)
Ok I must admit can someone please answer the following?

Why does inflation matter? The reason inflation increases is because there is more money in the system. Prices go up but as there is more money in the system we're no worse off because we can afford it.

In other words, inflation happens because "we become richer" with more money in the system, so of course prices will increase.

We'd only be screwed if prices increased more than the money supply increased- then we'd be poorer.

There's a whole thread for your question

http://www.thestudentroom.co.uk/show....php?t=1186466

[Martyn*]

(Original post by meenu89)
Yes, but in the main it should be the private sector responsible for creating employment.
It will be the private sector after all which would create the wealth.

The government needs to keep the private sector in-check and to ensure that citizens who cannot find work don't become victims of an unfettered laissez-faire and, worse case scenario, get left to die of starvation. The government should also provide public service with little or no concern for the profit motive.

[MagicNMedicine]

(Original post by billydisco)
Ok I must admit can someone please answer the following?

Why does inflation matter? The reason inflation increases is because there is more money in the system. Prices go up but as there is more money in the system we're no worse off because we can afford it.

In other words, inflation happens because "we become richer" with more money in the system, so of course prices will increase.

We'd only be screwed if prices increased more than the money supply increased- then we'd be poorer.

Sort of right you are thinking of a concept called 'the neutrality of money', ie in the medium term increases in money supply will be matched one for one with increases in prices. The amount of money in circulation does not affect how wealthy we are (that depends on the amount of output being produced).

The main problem is that price signals break down when people lose their ability to judge and compare prices over time. The whole market system is based on the idea of prices giving signals to consumers about relative values. When prices rise slowly consumers build up an idea over time about the relative values are good, eg an ticket to a gig is £20, an ipod is £200 so an ipod is worth about £20 gig tickets. But if prices were rising rapidly over time, then obviously the more expensive ones go up in larger increments and you lose the ability to keep track of what costs what and how to compare prices. This is really a problem at higher inflation levels (eg over 10%).

Also high inflation is often variable and harder to predict which is a real problem for businesses as they want to be able to accurately make business decisions not have to hedge their bets on will inflation be 14% or 10% this year, because it will make a big difference if they pay their staff 14% pay rise and the prices of their goods only rise 10%.

But yes I do think in general most people especially A level students overrate inflation at lower levels, we haven't suffered massive ill effects for the fact inflation has been running ahead of the 2% target for a while now, because it's not got any higher than a bit above 5%.

[billydisco]

(Original post by MagicNMedicine)
Sort of right you are thinking of a concept called 'the neutrality of money', ie in the medium term increases in money supply will be matched one for one with increases in prices. The amount of money in circulation does not affect how wealthy we are (that depends on the amount of output being produced).

The main problem is that price signals break down when people lose their ability to judge and compare prices over time. The whole market system is based on the idea of prices giving signals to consumers about relative values. When prices rise slowly consumers build up an idea over time about the relative values are good, eg an ticket to a gig is £20, an ipod is £200 so an ipod is worth about £20 gig tickets. But if prices were rising rapidly over time, then obviously the more expensive ones go up in larger increments and you lose the ability to keep track of what costs what and how to compare prices. This is really a problem at higher inflation levels (eg over 10%).

Also high inflation is often variable and harder to predict which is a real problem for businesses as they want to be able to accurately make business decisions not have to hedge their bets on will inflation be 14% or 10% this year, because it will make a big difference if they pay their staff 14% pay rise and the prices of their goods only rise 10%.

But yes I do think in general most people especially A level students overrate inflation at lower levels, we haven't suffered massive ill effects for the fact inflation has been running ahead of the 2% target for a while now, because it's not got any higher than a bit above 5%.

Thanks

[GeorgeMills]

Well obviously failing to control either would result in stagflation similar to that seen in the UK in the 70s.
I would try to combat voluntary unemployment. This is because this increases the labor force and therefore increases AS. Whilst providing growth it is non-inflationary. Which means that both fields of your question are being covered. Such policies to do this would include a reduction in benefits and a reduction in direct forms of taxation.
These two variables appear on the Phillips curve and according to Phillips it is impossible to simultaneously solve both. However it is not perfect as you will find in A2 economics. Most countries tend to fight unemployment at the expense of inflation.


This was posted from The Student Room's iPhone/iPad App

[chrisawhitmore]

(Original post by Martyn*)
The government needs to keep the private sector in-check and to ensure that citizens who cannot find work don't become victims of an unfettered laissez-faire and, worse case scenario, get left to die of starvation. The government should also provide public service with little or no concern for the profit motive.

The issue with this is, of course, that the private sector is better at any given job than the public sector, if only because competition forces it to be so. The public sector, as a vehicle for providing services, is the ultimate sacrifice of efficiency and value in exchange for stability. As a job creation method, the public sector is at best useless and at worst harmful, as for every public sector job, sufficient money must be taxed out of the private sector to pay the wages.