Unemployment means lost output for the country, and it also means severe hardship for those who are out of work. Inflation, in contrast, does not imply a loss of output, and although inflation causes some people to lose real income, it causes others to gain. Unemployment is therefore a much more serious problem for the country than inflation. We should strive to reduce unemployment as much as possible, and stop worrying so much about inflation. Discuss. Suggested Answer: Students should discuss the costs of both inflation and unemployment. High unemployment is socially wasteful. When the economy does not create enough jobs to employ everyone who is willing to work, a valuable resource is lost. Potential goods and services that might have been produced and enjoyed by consumers are lost forever. This lost output is the central economic cost of high unemployment. Both the human and economic costs of inflation are less obvious than the costs of unemployment. But this does not make them any less real. Inflation redistributes income in an arbitrary way. Societys income distribution should reflect the interplay of the operation of free markets and the purposeful efforts of government to alter that distribution. Inflation interferes with and distorts this process.