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The observation that inflation and unemployment tend to be inversely correlated More
Added Feb 15, 2012
Channel Education
Duration 8:47 | views 13827
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Recent Comments (31)
socctty Says:
Because demand has to increase in response to the rise in the monetary base. Paul Krugman is probably the guy to read on Japan's lost decade.
omgiheartpie Says:
If expansions in the money supply (inflation) inevitably cause price increases, then why has the central bank of Japan's trillion+ injection into the financial system not caused run-away price increases? In fact, deflation and anemic inflation have remained persistent and this has plagued Japan's economy for over 2 decades.
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ecnerwal999 Says:
"possible for wages to rise as long as there was a decrease in the price of some other good (or service) in the exact proportion in the economy?" Actually no, that would defy the identity: Income=Expenditure. All money earned as wages(and profits and interest) is used to purchase goods.
ftorresgamez Says:
@RyogaShark, Not necessarily "higher employment". If you have price floors on labor, you can have high demand and still high unemployment. The problem with Keynesian economics is that Keynesians tend to lump people's economic decisions into simplistic categories. For instance, they would lump together all employment and all wages to determine an average wage, when in fact people work in very diverse and different fields, with different productivity outputs.
DJAnthonyillWill Says:
Khan. You might be a RON PAUL guy lol.
JesseKantstopolis Says:
How come prices measured in gold and silver are falling?
JesseKantstopolis Says:
Inflation is the expansion of the money supply. To inflate is to expand the money supply. Rising prices are the consequence of inflation. Prices don't inflate, they rise or fall. The supply of money inflates or deflates. When the Fed creates trillions of dollars out of thin air you have more dollars chasing the same finite amount of goods and services. Prices fell during the industrial revolution.
RyogaShark Says:
Its same thing. Higher demand for labor = Higher employment. Or, Higher demand for labor -> Higher employment.
ftorresgamez Says:
@RyogaShark, "Higher employment is what causes Wages to rise." No, it's higher demand for labor, not higher employment. You can still have raising wages with high unemployment, especially under artificial wage floors.
RDCushing Says:
Actually, if there is high utilization there should be corresponding high productivity. As a result, prices should be relatively stable--in rising. However, politicians have always noted the correlation between higher inflation and lower unemployment. That is precisely why post-WWI Germany employed inflation to their own destruction by printing money to keep unemployment at a minimum (read: unions happy and civil unrest contained). The same is happening in the U.S. and EU today.
4thstuning Says:
First of all the Phillips curve has been debunked. Secondly, in the 1970s Nixon severed the link between gold and the dollar and ever since the dollar has depreciated along with every currency linked to it. Thirdly, the increase in economic capital and general productivity improvements naturally lower costs of production over time. If the currency is not debased, as in the 2nd half of the 1800s, general growth and good deflation occur improving everyone's wealth.
eskrod1 Says:
I understand that it is not possible for a general inflation without an expansion of the money supply above and beyond the expansion of production. However, wouldn't it be possible for wages to rise as long as there was a decrease in the price of some other good (or service) in the exact proportion in the economy? Therefore, wages could rise as long as (an)other good(s) or service(s) declined.
ecnerwal999 Says:
It's annoying to constantly waste my time educating the millions of clueless people about extremely basic economics. You said "Higher employment is what causes Wages to rise." That is incorrect. Real wages may rise, but it is impossible for all nominal wages to rise. If there is only 100$ in an island economy. Then how can wages exceed the total 100$ money supply? "the demand causes high employment" Another fallacy. Savings drives the economy, not consumer spending.
RyogaShark Says:
*laughs* If I do not understand it, pray tell me the points which I am wrong on. Don't just go and paste a website, You tell me if you know it.
ecnerwal999 Says:
You don't understand basic economics. I recommend you learn from the best; Mises.org
RyogaShark Says:
Higher employment is what causes Wages to rise. Naturally, if you want your workers to stay, you would have to have higher wages then your competitors. Now people spend more money since now that economy is better, which increases demand because everybody wants something, than the demand causes high employment., and so on.
ecnerwal999 Says:
WRONG! Wages can't rise without can expansion of the money supply. Wages(the price of labor), like any other price, cannot rise because it is constrained by the amount of money that exists. Inflation just lowers real wages, as nominal wages stay the same with higher prices, and therefore it is the low wages that create higher employment.
Confederalist Says:
Inflation is always and everywhere a monetary phenomenon. —Milton Friedman
williamjpiano Says:
so true...
Films4You Says:
Very Interesting. I think Some has Government ideology driving things.
Films4You Says:
Very Interesting. I think Some has Government ideology driving things.
PrometheanRunGood Says:
I'm guessing you're a fan of the Austrian school of economics?
BarackBrobama Says:
@Elmgren76 pray tell