Answers.com > Wiki Answers > Categories > Science > Social Sciences > Economics > Inflation > How does inflation lead to unemployment?

How does inflation lead to unemployment?

In: Inflation, Unemployment [Edit categories]

Answer:

The idea comes from Economic cycle. See the Related Link below.

The main idea is that while the economy is booming the unemployment is shrinking. People are needed to work/produce and employers are willing to pay more and more to get the most qualified workers, thus driving the wages up. They have nowhere to take the money from but to increase the price of their product/service. Thus driving the price level up (inflation).
After reaching the highest point - the economy goes into crisis/recession. The main problem is overproduction. Production shrinks. Producers cut costs: decrease output, layoff people. In this period the unemployment begins to grow.

First answer by Sofkiss. Last edit by Sofkiss. Contributor trust: 1 [recommend contributor ]. Question popularity: 2 [recommend question].

[report abuse]

Sources and related links: [Edit]

http://en.wikipedia.org/wiki/Economic_cycle

Can you answer these Inflation questions?

	What is the impact of inflation on debtors?	Answer it!
	What is used by the government to keep track of the rate of inflation?	Answer it!
	How does unemployment lead to inflation?	Answer it!
	What is operation risk?	Answer it!
	How often inflation occurs?	Answer it!

Relevant answers:

How is unemployment or inflation measured?
In the UK unemployment is measured by the Labour Force Survey which takes a sample population an records the number of people receiving Job Seekers Allowance. Therefore it doesn't include...
What is likely to lead to an increase in inflation?
Inflation at its core is a monetary problem. It is simply too much money chasing too few goods. The father of this theory is Milton Friedman (see link below).Rapidly rising production costs
What is the different between inflation and unemployment?
The number of people unemployed is the number of people in the country who are out of work and who are available for work at current market wage rates. This can easily be changed to a percentage by...
What may inflation lead to?
Inflation consequently leads to sharp rise in prices which in turn leads to the devaluation of money and prices rise. Also imports decrease and exports increase due to the devaluation of the local...
How did finacing the war lead to inflation?
To pay for the war, the Congress and the states printed hundreds of millions of dollars worth of paper money. These bills quickly lost their value, however, because the amount of bills in circulation...