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expectational inflation 
will occur. This means, regardless of whether the factors that have caused 
inflation are still persistent or not, there will arise a generally held view of what inflation is likely to be, 
and so to protect future income, wages and prices will be raised now by the expected amount of future 
inflation. This can lead to the vicious circle known as the 
wage-price spiral
, in which inflation becomes 
a relatively permanent feature because of people's expectations that it will occur. 
5.4.5 Money supply growth 
Monetarists have argued that inflation is caused by 
increases in the supply of money
. There is a 
considerable debate as to whether increases in the money supply are a 
cause 
of inflation or whether 
increases in the money supply are a 
symptom 
of inflation.
 
Monetarists have argued that since inflation is 
caused by an increase in the money supply, inflation can be brought under control by reducing the rate 
of growth of the money supply. 
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CHAPTER 3
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THE MACROECONOMIC ENVIRONMENT 
 
67 
 
6
Unemployment 
6.1 The rate of unemployment 
The
 rate of unemployment 
in an economy can be calculated as: 
Number of unemployed
Total workforce
× 100% 
The number of unemployed at any time is measured by government statistics.
If the flow of workers through unemployment is constant then the size of the unemployed labour force 
will also be constant. 
Flows into
 
unemployment
are: 
(a) 
Members of the working labour force 
becoming 
unemployed 

Redundancies 

Voluntarily quitting a job