Tradeoff between Inflation and Unemployment in the Short Run: A Case of the Indian Economy

Abstract

Unemployment and inflation are issues that are central to economic life of every developing country. This paper estimates the short-run tradeoff between inflation and unemployment for the Indian economy over the period 2009-2015, in order to know whether there is a tradeoff between inflation and unemployment. In short run there is inverse relationship of inflation with the unemployment, increase in inflation leads to decrease in unemployment and vice versa. This variable is subjected to Bi-variants regression analysis, with unemployment as its dependent variable in the first model, inflation in the second model and real GDP in the third model. The research outcomes proved the effective orientation of unemployment for the inflation and real GDP at statistically non-significance level. The findings proved the negative effect of unemployment for inflation and positive effect on real GDP. The unemployment is a continuously occurring phenomenon in all economies of developing countries where it is affecting highly the level of employment; price level, living standard of people, and real GDP. The findings proved the influential relationship between unemployment and inflation conditions, Unemployment and Real GDP conditions, but in our economic condition it is proved as non-significant. Consequently, the major policy implication of these results is that concerted efforts should be made by policy makers towards restructuring the economy, managing price instability and level of employment.