Academic journal article Economic Commentary (Cleveland)

No Trade-Off

Academic journal article Economic Commentary (Cleveland)

No Trade-Off

Article excerpt

Many people mistakenly believe that society must choose between a stable price level and rapid economic growth--that the two cannot co-exist. Some acquire this notion merely because it is repeated so often.

The belief that rapid real growth causes inflation can be traced back to the ideas that there is a trade-off between the inflation rate and the unemployment rate, and that the unemployment rate will be low only when growth is rapid.

When people believe in a trade-off between inflation and unemployment, they reason that economic policymakers must choose between twin evils and accept the combination that is most tolerable for the nation. According to this view, if policymakers want a little less unemployment, they can "buy" it by accepting or inducing somewhat more rapid inflation. But such trades are at best a short-run transitory phenomenon.

Today, few economists think that there is any long-run trade-off between inflation and unemployment. In fact, countries that try to exploit the supposed trade-off usually wind up with both inflation and unemployment. Instead of a trade-off, most economists believe that, conceptually, there is a "natural" rate of unemployment and that no amount of inflation can permanently hold unemployment below such a rate. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.