why does low unemployment cause inflation?

Question

why does low unemployment cause inflation?

In: 6

Answer 1

Low unemployment itself doesn’t ’cause’ inflation, but its an indicator that would coincide with inflation.

Low unemployment generally means the economy is growing and booming along, and its when the economy is growing quickly and interest rates are low that you’re likely to have a lot more borrowing and creation of money supply.

And it’s that which leads to inflation.

So it’s not a cause so much as it is often correlated.