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    how will an increase in inflation cause unemployment... i need an 4 mark explanation also evaluation point would be great..edexcel jan 2012 2c if you want to see the question

    (note: this is not the phillips curve as that states high unemployment causes low inflation no the other way round)
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    I could be completely wrong, because I do AQA, but I would assume that the increase in inflation would mean that consumer's real incomes have decreased, meaning they have less money to spend, which therefore reduces consumer demand as part of the aggregate demand formula. This would then shift the AD curve to the left in the AD/AS diagram, therefore reducing real GDP/unemployment etc. Hope this helps.
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    (Original post by Dingleboober)
    I could be completely wrong, because I do AQA, but I would assume that the increase in inflation would mean that consumer's real incomes have decreased, meaning they have less money to spend, which therefore reduces consumer demand as part of the aggregate demand formula. This would then shift the AD curve to the left in the AD/AS diagram, therefore reducing real GDP/unemployment etc. Hope this helps.
    Doesn't matter which board you do. We're all economist and the concept will always remain the same and yes that is a right explanation.

    Inflation also erodes the value of the currency. So therefore import can be much more expensive. What does that mean? Firms might adopt a cost minimisation strategy to remain profitable and deal with high costs. One cost minimisation strategy is that they could reduce their number of employees.

    Also as said above as the consumer demand falls firms tend to reduce capacity meaning that they will require less employees to match the demand.

    However what firms are doing recently is that they're telling their employees to go and sit home and they'll be called back when needed so officially the unemployment rate might not increase.
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    (Original post by dan94adibi)
    Doesn't matter which board you do. We're all economist and the concept will always remain the same and yes that is a right explanation.

    Inflation also erodes the value of the currency. So therefore import can be much more expensive. What does that mean? Firms might adopt a cost minimisation strategy to remain profitable and deal with high costs. One cost minimisation strategy is that they could reduce their number of employees.

    Also as said above as the consumer demand falls firms tend to reduce capacity meaning that they will require less employees to match the demand.

    However what firms are doing recently is that they're telling their employees to go and sit home and they'll be called back when needed so officially the unemployment rate might not increase.
    wow thanks guys..worded it greatly and by imports becoming more expensive does that mean that importing oil is more expensive therefor they adopt the cost minimisation strategy etc
    and doesnt inflation cause exports to become less price competitive to its subsitutes, reducing profits and leading to more unemployment?
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    (Original post by amar96)
    wow thanks guys..worded it greatly and by imports becoming more expensive does that mean that importing oil is more expensive therefor they adopt the cost minimisation strategy etc
    and doesnt inflation cause exports to become less price competitive to its subsitutes, reducing profits and leading to more unemployment?
    Yes absolutely.
 
 
 
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