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Authors

Dumas

Abstract

Traditional economic theory holds that there is a tradeoff between inflation and unemployment, and that accordingly price stability (i.e. 0% inflation) can only be achieved at the expense of increased unemployment, while full employment (corresponding to an unemployment rate of about 3%)' requires acceptance of an ongoing inflation. In 1960, the noted economists Paul Samuelson and Robert Solow published an analysis of annual data for the per d 1933-1958, from which they quantitatively estimated this tradeoff. It was their rough estimate that the elimination of inflation would require acceptance of a 5%-6% rate of unemployment while the achievement of full employment would impose a continuing 4%-5% rate of inflation. In a later study Lawrence Klein and Ronald Bodkin looked at quarterly data from 1946-57 and concluded that an unemployment rate of 6.9% would have to be maintained In order to achieve price stability, thus implying a slightly more severe tradeoff.

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