Final answer:
In general, it is difficult for an economy to achieve both a low inflation rate and a high level of employment of its potential workforce simultaneously due to the Phillips curve trade-off. However, under certain circumstances such as productivity gains and technological advancements, it is possible to achieve both objectives.
Step-by-step explanation:
In general, it is difficult for an economy to achieve both a low inflation rate and a high level of employment of its potential workforce simultaneously. This is known as the Phillips curve trade-off. According to the Phillips curve, there is a negative relationship between the inflation rate and the unemployment rate. When inflation is low, unemployment tends to be high, and vice versa.
This trade-off occurs because when an economy is growing rapidly and experiencing high levels of employment, this increased demand for goods and services can lead to higher prices, causing inflation. On the other hand, when an economy is facing high unemployment, there is less demand for goods and services, which can lead to lower prices and deflationary pressures.
However, there may be certain circumstances where an economy can achieve both a low inflation rate and high employment. For example, if an economy experiences productivity gains and technological advancements that increase the efficiency of production, it can lead to economic growth and higher employment without significant inflation.
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