Why do economists track inflation and unemployment together when studying the economy?
Answer (2)
Economists track inflation and unemployment together because these two indicators provide a full picture of how well or how poorly an economy is performing. Although they are different, they are often connected, and changes in one can affect the other.Inflation refers to the general increase in prices, while unemployment refers to the number of people who want to work but cannot find jobs. A healthy economy usually has moderate inflation and low unemployment. But when things go wrong, the relationship between the two can become complicated.One famous economic theory that connects them is the Phillips Curve, which suggests that when unemployment is low, inflation tends to rise, and vice versa. This is because more people working means more spending, which can lead to higher demand and higher prices. On the other hand, if many people are unemployed, demand falls, and prices go down or rise slowly.In the Philippines, these relationships can be seen in practice. For example, during the 2020 pandemic, unemployment reached record highs as many businesses closed. But inflation stayed low because people had little money to spend. By contrast, in 2022–2023, as the economy recovered and people returned to work, inflation surged due to global fuel costs and increased demand.Tracking both indicators helps economists and policymakers make better decisions. If inflation is high but unemployment is also rising, like in the case of stagflation, it means the economy is in serious trouble and may need a combination of tools to fix.Central banks like the Bangko Sentral ng Pilipinas must strike a balance. Raising interest rates can fight inflation but may also lead to job cuts. Lowering rates may help job growth but risks increasing prices.In summary, inflation and unemployment are closely linked. Monitoring both helps governments choose the right policies to ensure price stability, job creation, and overall economic health.
Economists track inflation and unemployment together because they are key indicators of economic health that often interact. High unemployment usually signals weak demand, which can reduce inflation, while low unemployment can push wages and prices up, increasing inflation. Studying both helps understand trade-offs and balance policies to promote stable growth.
