CHAPTER I Introduction Stability is a prerequisite for growth and equity so that the rate of inflation is too high to be lowered by interrupting the growth and impoverish the small people on low incomes and fixed. That is why after the 1965/1966 crisis and also after the 1997 crisis, lowering the inflation rate is a top priority in which the government and Bank Indonesia has succeeded admirably. In three years, inflation can be derived from 650 percent (1996) to 9 percent (1969), after 1997 inflation can also be reduced from 70 percent (1998) to only 5 percent (2003). But stability is not just for the sake of stability, but for something larger that is equitable and growth. After rising fuel prices, the prices become so high that people's purchasing power is still low. Economic growth indicate that the government has not been able to open employment opportunities to the people. Meanwhile, the business world also slows down. This is because the minimum wage increases the demand which must be fulfilled. Unemployed increased every year, in 2004 unemployment reached 10,854,254 people. Therefore, the purpose of making this paper are: 1. Knowing the concept and the relationship of inflation and unemployment. 2. determine the condition of inflation and unemployment in Indonesia 3. What the policy taken by the government to control inflation and reduce unemployment, increase employment.

CHAPTER II Theory 2.1 Unemployment Unemployment is the inability of labor-force participants to find jobs. Unemployment can be caused by insufficient of jobs, lack of capability both in terms of skills and education or even because of discrimination and geographical factors. These are the kinds of unemployment: 1. Cyclical unemployment ; unemployment attributable to a lack of job vacancies, that is, to an inadequate level of aggregate