INFLATION AND UNEMPLOYMENT: ARE THEY COMPLEMENTS OR SUBSTITUTES?

Inflation and unemployment plagued the U S economy during the decade of the seventies Some economic models suggest that inflation and unemployment are bi-polar events - they cannot occur at the same time This article reviews two models that have been in the economics literature since the thirties and that explain inflation and unemployment as complements, not substitutes One is the well-known IS/LM framework, the other is sometimes called the structural unemployment framework A third model which helps to explain the complementary between inflation and unemployment - one which focuses on the international balances of payments and trade - is not discussed