In short, when there is an increase in demand for a commodity, businesses will first see it as a positive signal to expand production and sales with higher prices, willing to pay higher wages to attract more workers. During that time, output growth comes with the unemployment rate fell.
But this phenomenon occurs only for a time until the increase in the expected price of both businesses and workers will together be adjusted according to the actual situation.
With the new expectations, enterprises and workers will realize the commitments in the original labor contract is no longer as optimistic as before. At that time, or the enterprise will tighten recruitment needs, or workers will require higher wages. In other words, the unemployment rate in the long run will return to "natural".
An explanatory factors for the increase in prices was the expectation of the needs of the economy on the 2 markets goods and labor. If everyone believes that prices will rise at least 10%, workers and businesses will bring psychology into negotiations on labor contracts, fuel purchases of inputs and finished goods price .
this suggests that the key issue is not inflation, but the inflation expectations of people and businesses. This expectation will affect the next change in aggregate demand.
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