Why are inflation and unemployment considered the two economic evils? Explain using their effect on circular flow?

Unemployment and inflation are called the "twin evils" of macroeconomics. The two measures are closely related - when unemployment rises, inflation tends to fall, and vice versa.

One major theory about the relationship of unemployment and inflation is called the Phillips Curve; it is the formalization of the relationship between unemployment and inflation

Explanation:

Quanto maior a taxa de desemprego menor a taxa de inflação, esse fato é denominado Curva de Phillips.

Quanto maior a taxa de desemprego, menos renda é gerada na economia e o resultado é uma menor demanda por bens e serviços. Quanto menor a demanda, menor o poder das empresas de aumentar os preços e maior a competição entre as empresas pelos consumidores, o que aumenta o incentivo para que elas reduzam seus preços para aumentar a demanda por seus produtos. Para determinar a taxa de inflação dos bens comerciáveis, o que importa é a taxa de desemprego global.

Fonte: Blog do Ibre

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