Lower unemployment rate= higher inflation
 

I can tell I'm going to get pounded on this one, but for people who know what I'm talking about and know about economics, how many of you agree with the statment that a low unemployment rate = higher inflation, and thus having unemployment at about 3-5% is actually good for the economy.

Re: Lower unemployment rate= higher inflation
 

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I can tell I'm going to get pounded on this one, but for people who know what I'm talking about and know about economics, how many of you agree with the statment that a low unemployment rate = higher inflation, and thus having unemployment at about 3-5% is actually good for the economy.

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Correct me if I'm wrong because I'm no economic major but isn't 3 percent unemployment pretty much full employment? ie. at any given time 3 percent of the ppl. are going to be between jobs.

As far as inflation goes I think we may be heading into a an area of Higher inflation. Even though energy cost have come down alittle they are still a lot higher then last year. I will just be a matter of time before these higher energy costs are going to be pushed down to the consumer. With this being said I don't see the Fed slowing down rising rates anytime soon.

I'm not sure if inflation has anything to do with a super low unemployment rate unless the economy is growing at a incredible rate.

Re: Lower unemployment rate= higher inflation
 

MILTON FRIEDMAN AND THE NATURAL RATE OF UNEMPLOYMENT

"Full employment" does not mean 100 percent employment. For various reasons, the unemployment rate cannot be reduced to zero, if only because people are always being fired, laid off or moving between jobs. But even granting that unemployment can never be completely eliminated, it still might be possible to ensure that anyone searching for a job can find one reasonably quickly. Economists call this happy state of affairs "full employment."

How can it be reached? Early Keynesians believed that they could achieve it by expanding the money supply. Of course they could not overdo it. Keynes himself knew of this danger when he wrote Tract on Monetary Reform in 1923. The central bank could expand the money supply right up to the point where full employment was reached; after that, any monetary expansion would result in inflation. The question was how much to expand.

An apparent answer emerged in 1959, when British economist A.W. Phillips discovered a relationship between wages and unemployment in British historical statistics. When unemployment was high, wages had fallen; when unemployment was low, wages had risen. A look at American statistics revealed the same tradeoff. Since wage changes are indicators of inflation, this discovery actually showed that a tradeoff existed between inflation and unemployment. Accepting more of one meant less of the other. When graphed, this tradeoff produced a nice, neat curve, which became known as the "Phillips Curve."

This discovery helped policy-makers determine how much to expand the money supply. Previously, no one really knew what constituted "full employment." Now they could make a judgment call. The curve showed them how far they could expand the economy without letting the cost of inflation outweigh the cost of unemployment. This seemed to be 3 or 4 percent inflation in return for 4 percent unemployment.


Note the terms the "natural rate of unemployment" and the term "Phillups Curve" from the above excerpt from the article.

Re: Lower unemployment rate= higher inflation
 

3% is employment is not full employment, its 3% unemployment. 5% unemployment is A-OK, although some nutjobs think it would be worth hiking taxes on a massive scale in order to throw more government money at the "problem" and somehow reduce unemployment to 2%.

Re: Lower unemployment rate= higher inflation
 

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3% is employment is not full employment, its 3% unemployment. 5% unemployment is A-OK, although some nutjobs think it would be worth hiking taxes on a massive scale in order to throw more government money at the "problem" and somehow reduce unemployment to 2%.

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I meant 3 percent unemployement and I agree that 5 percent is OK.

Re: Lower unemployment rate= higher inflation
 

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I can tell I'm going to get pounded on this one, but for people who know what I'm talking about and know about economics, how many of you agree with the statment that a low unemployment rate = higher inflation, and thus having unemployment at about 3-5% is actually good for the economy.

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The Phillips curve is dead.

Re: Lower unemployment rate= higher inflation
 

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I'm not sure if inflation has anything to do with a super low unemployment rate unless the economy is growing at a incredible rate.

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It works more in reverse, the low unemployment will cause inflation. If unemployment is really low, employees can now ask for more raises because the company can't fire them because they might not be able to hire someone at the same rate. So wages tend to rise. Also with lower unemployment, more people working = more output, so the economy expands, and using aggregrate functions, the closer real GDP is to natural GDP the higher the inflation rate. However many european banks dont really fully believe in this last statement...but it's europe...cmon lol

Re: Lower unemployment rate= higher inflation
 

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I can tell I'm going to get pounded on this one, but for people who know what I'm talking about and know about economics, how many of you agree with the statment that a low unemployment rate = higher inflation, and thus having unemployment at about 3-5% is actually good for the economy.

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I don't think any mainstream economist believes this anymore.

Re: Lower unemployment rate= higher inflation
 

How about Bernake, or any well known economist. Please dont post with out facts.

Re: Lower unemployment rate= higher inflation
 

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I can tell I'm going to get pounded on this one, but for people who know what I'm talking about and know about economics, how many of you agree with the statment that a low unemployment rate = higher inflation, and thus having unemployment at about 3-5% is actually good for the economy.

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I don't think any mainstream economist believes this anymore.

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Um. Wow. If by mainstream you mean ignorant, then yes, you are right.