Final answer:
The existence of low inflation and low unemployment in the 1990s puzzled economists because it contradicted the traditional economic theory of the Phillips curve. However, factors such as technological advancements and globalization helped keep inflation low despite low unemployment.
Step-by-step explanation:
During the 1990s, the existence of low inflation and low unemployment puzzled some economists because it went against the traditional economic theory that states there is a tradeoff between inflation and unemployment, known as the Phillips curve. According to the Phillips curve, when unemployment is low, inflation should be high, and vice versa. Therefore, the simultaneous presence of low inflation and low unemployment in the 1990s challenged this conventional thinking.
However, economists later realized that several factors contributed to this phenomenon. One key factor was the increase in productivity and efficiency due to technological advancements, which allowed businesses to produce more with fewer employees, keeping wages low and inflation in check. Additionally, globalization and the opening of new markets during this period increased competition, leading to lower prices and inflation.