Milton Friedman has been puzzled by a low employment rate and also low inflation, but very much believes that a tradeoff existing between unemployment and inflation can very much work, but for the short run. Consequently, organization and business will have to compete to get employees for their firm which attracts high wages; therefore, there will be an increase in wages spur inflation. Unemployment has been dropping over the years from about ten percent to four percent which was recorded from the year 2009, but the inflation has not been rising.
Why the paper is looking at the tradeoff that Milton Friedman believes exists between unemployment and inflation is, since there have been debates regarding whether there should be a stricken by choosing between unemployment and inflation. Friedman poses some essential points noting that the unions that people are debating about to be the cause of choosing between inflation and unemployment are not the cause. He went on by saying that even if no unions were forcing the rise in wages, there would still, exist unemployment.
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Monetary policies should not affect the way of life of people, thinking that it will hold the state of inflation for long. Therefore, fiscal policies should not aim at giving the employees high wages that will increase inflation but instead try and take action by choosing between the two issues at hand. Friedman argued that it would be prudent for the Federal Reserve to make sure that it is shifting its focus on inflation only; since people’s inflation expectations should be viewed as what is to be the future inflation itself. Therefore, it would be correct to say that tradeoff between inflation and unemployment is very important in the short run.
