Inflation and Unemployment in Our Economy Inflation and Unemployment affects our economy in terms of growth in various ways. Inflation for example can be categorized in segments to see how our economic growth is affected. When you look at investments in terms of inflation as one example, if prices of goods where to rise do to inflation, people would have to spend more money having to use up what they have in savings, causing money to be less available and no longer being able to make investments.
People are only willing to invest if they have enough money in savings to pay for the investment without affecting their daily needs. To determine how unemployment affects economic growth, one way would be to look at the statistical model invented by Arthur Okun known as Okun’s law. According to Investopedia, “In the most basic form, Okun’s law investigates the statistical relationship between a country’s unemployment rate and the growth rate of its economy.” (Fuhrmann) A benefit of Okun’s law is that in a simpler term, a 1% decrease for unemployment will happen when the economy has a growth of 2%.