mariamalik260801
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#1
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#1
How does inflation help to prevent unemployment?
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Gent2324
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https://www.investopedia.com/article...re-related.asp
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mariamalik260801
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thanks but i had read it already, i couldn't really understand that article.
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Gent2324
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(Original post by mariamalik260801)
thanks but i had read it already, i couldn't really understand that article.
ok. what dont you understand about the article? is the concept of inflation itself?
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mariamalik260801
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(Original post by Gent2324)
ok. what dont you understand about the article? is the concept of inflation itself?
its about the phillips curve. We don't have that concept in AS levels right now.
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username3515912
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The Philips curve is quite straight forward and you should come across it in the course so it’s good to know. It basically shows the effect of high/low inflation on employment and the other way round. As you can see by the graph, when unemployment is say at 6%, inflation is at 2%. And when inflation is at 5%, unemployment is at 3%.


Name:  4809BD9D-C8D4-4831-B48F-FCD09463B667.jpeg
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Why is this?

- High unemployment means that people have less disposable income and therefore spend less, thus the total aggregate demand in the economy falls and so prices fall (deflation) as sellers look to increase demand.
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hannah00
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wages are fixed in the short run

Firms notice they are getting more revenue(because inflation means things cost more) and paying the same wages.

They hire more people to meet additional demand.

workers notice inflation, demand higher wages, firms pay hire wages and therefore produce less.
look up sticky wages theory
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mariamalik260801
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#8
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(Original post by hannah00)
wages are fixed in the short run

Firms notice they are getting more revenue(because inflation means things cost more) and paying the same wages.

They hire more people to meet additional demand.

workers notice inflation, demand higher wages, firms pay hire wages and therefore produce less.
look up sticky wages theory
thanks a lot. will look it up.
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mariamalik260801
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#9
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(Original post by TheArabEconomist)
The Philips curve is quite straight forward and you should come across it in the course so it’s good to know. It basically shows the effect of high/low inflation on employment and the other way round. As you can see by the graph, when unemployment is say at 6%, inflation is at 2%. And when inflation is at 5%, unemployment is at 3%.


Name:  4809BD9D-C8D4-4831-B48F-FCD09463B667.jpeg
Views: 102
Size:  28.6 KB

Why is this?

- High unemployment means that people have less disposable income and therefore spend less, thus the total aggregate demand in the economy falls and so prices fall (deflation) as sellers look to increase demand.
thanks helped me out.
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