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How does a low rate of inflation affect the economy?

Is it possible to have low unemployment while in an economy have a low rate of inflation?

  • According to Phillips Curve, this has a inverse relationship between unemployment rate and rate of inflation, simply, the lower the unemployment in an economy, the higher the rate of inflation in that economy. is there any possible to have an economy that low unemployment rate and low inflation rate happen at the same time? Thanks.

  • Answer:

    It is possible, and it was achieved during the Clinton Administration. UK also acheived this as well under Tony Blair.

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Perhaps in WAR time-- I do mean World War. not a conflict like we have today.

cork

Yes. Inflation has more to do with the monetary policy and unemployment has more to do with the overall economy. In the 70s there was high inflation and high unemployment (stagflation) due to the monetary crisis spending on Vietnam, the Great society, AND going off of the gold standard. It stands to reason the opposite is also possible. The 90s are a pretty good example of this. Increasing the money supply can lower unemployment and vice versa but money supply is not the only thing that affects unemployment. Back in old time when people traded gold or bartered there was no inflation but economies would still grow and flourish and I'm sure some would have very low unemployment rates.

Eddie B

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