Which is a more serious problem to avoid unemployment or inf

Which is a more serious problem to avoid: unemployment, or inflation? (Note that this is not asking you which is a more serious problem these days – that’s obviously unemployment. Rather, this question is asking you: if you had the power to do something to reduce unemployment now, but would also create inflation as a side-effect, would you do it?)

Solution

Inflation is nothing but an excess of demand over the supply. The higher the difference between the demand and supply the higher the inflation. When the demand is more than the actual supply the firms in the economy employ more to produce and this reduces the unemployment.

The Philip curve correctly depicts this trade-off between the unemployment and inflation in the economy. Yes, if I have the power to reduce the unemployment but as a side effect create a little inflation I will go for reducing the unemployment. We can use several policy measures like easy monetary policy or large fiscal deficits to reduce the unemployment. The rising inflation will only be a problem in the short run where we have capacity constraints but it will ease in the long run.