Inflation and Unemployment

Inflation is the increase in prices of goods and services over time, which reduces purchasing power—a dollar buys less than before. It can occur when demand exceeds supply or when production costs rise. Unemployment refers to the percentage of people who are actively seeking jobs but cannot find work. Inflation and unemployment are often related; for example, high inflation can lead to increased costs for businesses, which may hire fewer employees or lay off workers, contributing to higher unemployment. Economists study the balance between these two factors to understand and manage economic health.