Society Faces a Short-Run Trade Off between Inflation and Unemployment

The tenth economic principle suggested by Mankiw is "Society Faces a Short-Run Trade Off between Inflation and Unemployment." Now, what does this really mean? What trade off?

In the society that we live in, we continuously purchase goods, and behind all purchase exists the demand for each goods. The need and demand for such goods acts as the determinant of inflation, and it is the policy-makers' and economists' role to set up a bound for inflation so that the inflation rate of 2-4% is maintained.

Additionally, not all people have the equal purchasing powers as others do, and not everyone is employed as others are. In the perspective of an economist or a policy-maker, the lower the unemployment rate, the better, and people have been single-handedly working on abating the degree of unemployment to facilitate the general welfare of the country.

In the perspective of a policy-maker, simply printing more money so the general economy of a nation is facilitated would be a wonderful option; people, then, would be encouraged to spend more and as the people spend more, the companies and manufacturers would be inspired to produce more. This means there is less economic regulation put, and unemployment rate would be reduced. Essentially, the general economy is risen. However, because more money has been printed, the inflation rate would go up, risking the economy in its entirety.

This dilemma of choosing to either enhance the state of inflation or unemployment - thus facing a trade off - has been a continuous problem for policy-makers and economists for a long time. Here in this blog, we will be discussing further on this dilemma and real examples regarding the principle.