Topic: Unemployment and Cost Inflation

The two main forms of economic problems are unemployment and inflation. There are different types of unemployment in the economy. Moreover, some employed people are underemployed, particularly during economic downturns like recessions.

Stabilizing prices is one of the macroeconomic goals of policy making. Price stability calls for taming inflation or deflationary pressure in the economy.

1. What are the various forms of unemployment? What type of unemployment is the most difficult to solve? Why?
2. Discuss the differences between unemployment and underemployment and give examples for each of them. What are the costs of unemployment and underemployment on the economy?
3. What are the costs of inflation? What are the costs of deflation? Why do policymakers need to tame inflation (deflation) to stabilize prices? When does rate of inflation become a problem in the economy?