ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Stagflation is an economic situation where the economy experiences the combination of inflation and stagnation. In this kind of situation the economy experiences unemployment with rise in the general price level.

Detailed explanation-2: -Inflation does not simply affect the unemployment rate but does so in a cyclical fashion, where inflation affects unemployment rates and vice versa. High inflation seems to cause a rise in the unemployment rate. For example, if there is a 10% inflation rate, unemployment will increase by 1%.

Detailed explanation-3: -It’s the unexpected increase in demand (or decrease in supply) that sets off inflation. Along those same lines, how much inflation people expect affects how much inflation we actually get. As prices of goods rise, workers aren’t able to buy as much with their wages.

Detailed explanation-4: -When unemployment rises, the inflation rate will possible to fall. This is because: If the unemployment rate of a country is high, the power of employees and unions will be low. Then, it is hard for them to demand their labor power and wages because employers can rent other workers instead of paying high wages.