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Principles of Economics - Macro: Atilio E. Gonzلlez

Friedman expressed that there is only a temporary tradeoff between inflation and unemployment, not a permanent one. A rising, unanticipated rate of inflation can lower unemployment in the short term for 2-5 years, but a high, sustained rate of inflation will not. Most macroeconomists still agree with Friedman's view that the tradeoff is only temporary, not permanent.

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35 views1 page

Principles of Economics - Macro: Atilio E. Gonzلlez

Friedman expressed that there is only a temporary tradeoff between inflation and unemployment, not a permanent one. A rising, unanticipated rate of inflation can lower unemployment in the short term for 2-5 years, but a high, sustained rate of inflation will not. Most macroeconomists still agree with Friedman's view that the tradeoff is only temporary, not permanent.

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kyahua
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Atilio E.

Gonzlez

Principles of Economics - Macro


Inflation vs Unemployment
"Although the tradeoff between inflation and unemployment has generated much
intellectual turmoil over the past 40 years, certain principles have developed that
today command consensus. Here is how Milton Friedman expressed the
relationship between inflation and unemployment in 1968:
There is always a temporary tradeoff between inflation and unemployment; there is
no permanent tradeoff. The temporary tradeoff comes not from inflation per se, but
from unanticipated inflation, which generally means, from a rising rate of inflation.
The widespread belief that there is a permanent tradeoff is a sophisticated version of
the confusion between "high" and "rising" that we all recognize in simpler forms. A
rising rate of inflation may reduce unemployment, a high rate will not.
But how long, you will say, is "temporary"? ... I can at most venture a personal
judgment, based on some examination of the historical evidence, that the initial
effects of a higher and unanticipated rate of inflation last for something like two to
five years.
Today, about 30 years later, this statement still summarizes the view of most
macroeconomists."

Source:
N. Gregory Mankiw: "Principles of Economics"
Chapter 33: "The Short-Run Tradeoff Between Inflation and Unemployment"
Dryden

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