Relationship Between Unemployment and Inflation

Medium Macroeconomics Unemployment And Inflation

The economy of a nation is currently experiencing rising levels of unemployment alongside decreasing inflation rates. Economists are debating the underlying causes and consequences of this unusual economic environment. Given the dynamics of unemployment and inflation, which of the following statements best describes a likely scenario concerning these two economic indicators?

Higher unemployment will likely lead to an increase in inflation as companies raise prices to cover the costs of having fewer employees.

Increased unemployment is generally associated with lower inflation, as reduced consumer spending leads to decreased demand for goods and services.

Decreasing inflation will result in higher unemployment due to increased production costs impacting business profitability.

Hint

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