Final answer:
A trade-off between inflation and unemployment exists, as illustrated by the Phillips curve.
Step-by-step explanation:
Yes, a trade-off between inflation and unemployment exists. This is known as the Phillips curve, which illustrates the relationship between inflation and unemployment. According to Keynesians, there is an acceptable tradeoff between the two, meaning that when unemployment is high, inflation can be lowered, and vice versa. However, neoclassical economists argue that there is no such tradeoff and any short-term gains in lowering unemployment will eventually lead to inflation.
The question as to whether a trade-off between inflation and unemployment exists is a significant topic in economics. Keynesians believe in a trade-off, especially when handling a recession, picturing a scenario where reducing unemployment may lead to higher inflation. They refer to the Phillips Curve, which illustrates an inverse relationship between inflation and unemployment rates. For instance, a point on the curve might show that a decrease in unemployment to 4% comes with an increase in inflation to 5%. Alternatively, lowering inflation to 2% could raise unemployment to 7%. Conversely, neoclassical economists argue that such a trade-off is short-lived, suggesting that any attempt to lower unemployment below its natural rate through monetary policy would eventually lead only to higher inflation without long-term employment gains.