What is opportunity Cost?

Opportunity cost is a decision in choosing what to give up in order to attain something that is more variable or worthwhile. It is the loss from other alternatives when one is chosen. For example, Caroline has a side business in addition to his regular job as a teacher. She decided to resign after working for years and choose to grow and focus on her business. The opportunity cost of this decision is the wages and more incentives she lost and should have gotten from choosing her business over her regular and stable job.

How is Inflation related to unemployment?

Inflation is an increase in the overall level of prices in the economy. In the long run, it is primarily caused by the overproduction of money and through this, the value of money will decrease and so the purchasing power. In short run trade off, inflation and unemployment is inversely related to each other because when the inflation rate decreases, the unemployment rate increases. In this case there will be a lower price of goods or services in the country. There’s a chance for the country to trade-off and import or export to other countries abroad and attain economic growth. It can be favorable to the economy of the country but not for the individuals who will not attain employment. It will end with less work and production in the country. On the other hand, when the inflation rate increases, the unemployment rate will decrease because there is enough supply of money to pay for the wages of the employees. Employers have the ability to provide and allocate enough resources for their employees. Therefore, when unemployment is low, more consumers have income to purchase goods or services. Demand rises and so the price of goods or services follows. While when unemployment is high, consumers have lower ability to purchase goods or services and so the demand will decrease and be followed by the price.