Explain, with the help of a diagram, the relationship between unemployment and the rate of inflation.

Diagram: https://i.imgur.com/LCMuewo.jpg Unemployment occurs when someone is actively looking for a job in the labour market but cannot find one, whereas inflation is measured by a percentage in the annual percentage change in consumer prices. An inverse relationship of trade-offs exists between the two which can be illustrated using a Phillips Curve. As shown in the diagram, the rate of inflation is shown on the Y-axis whereas the rate of unemployment is shown on the X-axis. Taking point X for example, when inflation is at 3%, unemployment will be at 1%. Compared to point Y, with inflation at 1% and unemployment at 3%.This trade-off caused by the two factors can be explained by the fundamental economic problem - where there is a scarce amount of resources but infinite wants. As more human capital is acquired through jobs, labour becomes scarce, therefore, could increase the bargaining power of workers for higher wages since there is more demand for labour. As more workers are getting more income, it causes both demand-pull and cost-push inflation, where workers place additional demand on goods and services and firms having to pay a higher price for human capital causing higher production costs. As a consequence, when the unemployment rate decreases, the inflation rate should increase according to economic theory.