Please explain how a lower unemployment rate (below 5%) leads to inflation.?

Is this a simple supply and demand problem, i.e., more people have money to spend, so supply goes down, demand goes up, and prices rise? How did the 5% figure that is tossed around get arrived at?

Please explain how a lower unemployment rate (below 5%) leads to inflation.?

As labor is more scarce, it costs more.

As firms pay more for labor, they charge more for goods.

As goods cost more, inflation goes up.

Etc.

This is why productivity gains is the best way to wage gains.

Please explain how a lower unemployment rate (below 5%) leads to inflation.?

The lower the employment rate the higher demand for workers causing wage rates to go up, causing inflation.

Please explain how a lower unemployment rate (below 5%) leads to inflation.?

I am not an economics major so I will do my best to explain...

The more people in work, the more people that have money to flood the system with their money. The more money that is flooded into the system the more the prices go up. Honestly, supply and demand do not have a lot to do with it. It%26#039;s mainly that more money floods the system so the Value of the Dollar drops. When the Value of the Dollar drops, prices go up to compensate. I hope this makes sense.

The 5% figure is usually decided by the amount of american%26#039;s who are on welfare and are unemployed (must meet both qualifications). So, if you have a next door neighbor who deals drugs he is not counted as unemployed because he%26#039;s not getting money from the government only from druggies. They take the amount of people on welfare and divide it by the most recent sensus of total american%26#039;s

Please explain how a lower unemployment rate (below 5%) leads to inflation.?

I believe the theory is that with a fewer unemployed people, employees have more leverage to request a raise, or leave for another job. The employer then must offer some other person more money to hire that next person away from his current employer. Thus wage increases begin to spiral. And to pay for the added salary, however small, the business man will add a little more to his product price.

Thus as wages go up faster, so does the cost of everything else. If wages can go up slower, such as with people having less leverage for a raise, inflation is kept low.

Not sure about that 5% number.