Article summary This article by Andrew McCathie posted in EarthTimes and titled “European inflation climbs unemployment at 12-year high was posted on Friday July 30 2010. The article reports that food and energy costs have played a critical role in driving up inflation in the 16-member eurozone. The rates of unemployment remained stagnant to its highest level during this time. Introduction The recent global financial crisis that affected not only America but also Europe and other parts of the world resulted in massive unemployment. This is due to the high costs of operation that many corporations faced forcing them to cut on labor costs. There is need for European government interventions to avert this social crisis and prevent the occurrence of such a crisis in future. Unemployment has hit the service sector harder than other sectors with the following being the most affected: automotive, construction, tourism, finance and real estate. The global financial crisis has also increased consumer prices thus pushing inflation. According to McCathie, “the increase in July consumer prices to 1.7 per cent pushed inflation in the currency bloc up towards the European Central Bank’s target of keeping inflation at below, but close to 2 per cent. Eurozone consumer prices had stood at 1.4 per cent in June” (McCathie, 2010). As different issues relating to global financial crisis and its effect on employment in European Union were brought up in the article, this report aims to analyze the unemployment situation and inflation in Europe with the aid of economic theories. In the report, the following aspects have been considered: consumer prices and how they affect inflation, unemployment and how it is related to inflation and finally,... ... middle of paper ... ... should device ways of eliminating the causes of global financial crisis so that the effects of this crisis may not be experienced again in the world. References Arnold, R. A. (2008). Economics. London: Cengage Learning. Cencini, A. (2008). Inflation and unemployment: contributions to a new macroeconomic approach. London : Routledge. Mankiw, N. G. (2008). Principles of Macroeconomics. London: Cengage Learning. McCathie Andrew (2010 July 30). European inflation climbs unemployment at 12-year high. EarthTimes Robert M. Solow, John B. Taylor. (2009). Inflation, unemployment, and monetary policy. New York: John Wiley and Sons. Taylor, J. (2009). Principles of Macroeconomics. London: Cengage Learning. Ungerer, H. (2007). The European monetary system: developments and perspectives. New York: International Monetary Fund.
Macropoland, a natural gas and oil importer, has a natural rate of unemployment of about 4.5% and a long run average rate of inflation of about 2%. However, there are two specific time periods where these rates fell below their potential. During the period between 1973-1974, the country had an inflation rate of about 15%, with an unemployment rate of nearly 13%. And now, they are experiencing an unemployment rate of 9% and an inflation rate of 0.4%. As their new economic advisor, it is my job to explain these two time periods.
Clark, Todd and Christian Garciga. "Recent Inflation Trends." Economic Trends (07482922), 14 Jan. 2016, pp. 5-11. EBSCOhost, cco.idm.oclc.org/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=112325646&site=ehost-live.
"What Really Caused the Eurozone Crisis?" BBC News. BBC, 19 June 2012. Web. 21 May 2014.
It all started in the summer of 2007 when a crisis hit the U.S., and because of the huge government interventions that were made, the U.S. and most European countries got into a recession. The EU crisis was also caused by big debts made mostly in Spain and Italy, before 2008. The private sectors (companies and mortgage borrowers) who were taking out loans were the main reason for this crisis. There was a decrease in the interests rates in southern European countries when they joined the euro and that resulted and caused the countries to go into a huge debt. This had negative effects on the financial markets, a slowing down of the economic growth in the industrialized countries, and impacted the European labor markets. After the Second World War the unemployment rates in Europe were already low, and with the crisis the percentage of the unemployment rates just increased in the following years. All of this was due to different problems and occurrences that they were facing such as; the two oil price shocks, the decrease in the production growth, the disinflationary policy of many Central Banks, and so on. This recession resulted in very high unemployment, and the increase in unemployment during that period was made by using some internal measures (such as flexible working time arrangements, temporary closures, etc.) but the unemployment was not equally shared between the different groups of people (the largest differences occurred due to the sex, education, age, etc.) but at the end these measures only delayed the process of significant labor unemployment, it didn’t help the situation go back to how it used to be before the crisis.
Inflation; ‘a situation in which prices rise in order to keep up with increased production costs… result[ing] [in] the purchasing power of money fall[ing]’ (Collin:101) is quickly becoming a problem for the government of the United Kingdom in these post-recession years. The economic recovery, essential to the wellbeing of the British economy, may be in jeopardy as inflation continues to rise, reducing the purchasing power of the public. This, in turn, reduces demand for goods and services, and could potentially plummet the UK back into recession. This essay discusses the causes of inflation, policy options available to the UK government and the Bank of England (the central bank of the UK responsible for monetary policy), and the effects they may potentially have on the UK recovery.
If financial markets are instable, it will lead to sharp contraction of economic activity. For example, in this most recent financial crisis, a deterioration in financial institutions’ balance sheets, along with asset price decline and interest rate hikes increased market uncertainty thus, worsening what is called ‘adverse selection and moral hazard’. This is a serious dilemma created before business transactions occur which information is misleading and promotes doing business with the ‘most undesirable’ clients by a financial institution. In turn, these ‘most undesirable’ clients later engage in undesirable behavior. All of this leads to a decline in economic activity, more adverse selection and moral hazards, a banking crisis and further declining in economic activity. Ultimately, the banking crisis came and unanticipated price level increases and even further declines in economic activity.
During the first five years of the existence of the Euro, the average rate of inflation in the euro area has been 2 per cent, which is in line with the ECB’s definition of price stability. Even though inflation has occasionally risen above the 2 per cent ceiling this was a consequence of a number of shocks such as the oil shock. What is important is that these first five years of the euro’s existence, inflation expectations have remained secured to a rate close to or less than, 2 per cent as can be derived form the yields of index-linked long-term bonds.
Eurozone crisis has had huge impacts not only on the economy of the UE but also on the other countries who have economic and financial relations with the members of the union. The reason why we have decided to examine the Eurozone crisis in detail is to have a better understanding of the mechanisms behind this extremely important and complex problem and also to make accurate inferences about the solution alternatives. In our pape...
Macroeconomic factors like inflation and unemployment are considered as a top-down approach that portrays the bigger picture of the functioning of the whole economy. In every region, it is the macroeconomic factors that determine the manner of operation of the economy with stability in these factors indicating economic stability and an unstable condition of the factors equally leading to poor performance of the overall economy. The paper examines how inflation and unemployment affected businesses in the UK in 2014.
In December 2007, the United States of America experienced a very scarce yet appealing setback. In fact, because of this specific dilemma between 200,000 and 500,000 Americans were left unemployed and without a stable home. The National Bureau of Economic Research defined this nationwide downfall as “The Great Recession”. More recently, according to the US Bureau of Labor Statistics the unemployment rate has not made a drastic improvement since the start of the Great Recession. Unemployment has become an issue that is still arising today with a slow rate of change. By most measures, the economy has not improved: Unemployment is up, consumer spending is down, and financial markets have not regained the ground they lost in the 2008-09 financial crisis. Due to the occurrence of the Great Recession in 2007, the employment rate has drastically dropped disabling thousands of Americans to live up to the cost of living. It is obvious that the Great Recession can merely be the cause of the high rate of unemployment.
In conclusion, we feel that the recommendation we have suggested in this report is a suitable foundation to build a sustainable and prudent financial system in this country. This will facilitate the financial industry both, withdraw out of this crisis and in the future avoid as much as possible inducing the scale of matters at present. As the report suggest, everyone contributed in their own miniscule way to this crisis, we feel that it’s up to every one of us to contribute to the overall recovery of this financial crises and recovery of the nation in general.
The debate of the relationship between inflation and unemployment is mainly based on the famous “Phillips Curve”. This curve was first discovered by a New Zealand born economist called Allan William Phillips. In 1958, A. W. Phillips published an article “The relationship between unemployment and the rate of change of money wages in the United Kingdom, 1861-1957”, in which he showed a negative correlation between inflation and unemployment (Phillips 1958). As shown in figure 1, when unemployment rate is low, the inflation rate tends to be high, and when unemployment is high, the inflation rate tends to be low, even to be negative.
The talk of the Euro has been a central debate for economists, since its introduction in 1999 to the tough times it faces today. It was brought in to stimulate growth by increasing trade and creating more integrated financial markets for investors. It allowed member states to forgo exchange rate fluctuation risks and costs, which meant more economic stability and growth. However the EMU was set up, without any exit strategies in place , in order to portray a sense of strength to investors. This seems to be currently hampering Euro Area growth rates with its inflexibility to deal with asymmetric shocks which are yet to be back to pre-crisis levels (see figure 1). Policy makers within the ECB are struggling to create fiscal and monetary measures that will stimulate growth, and brings into question the viability of the Euro as an optimum currency within Europe. This was already shown by the failed reforms of 2010.
Today, our nation is in a recession. Nobody can deny that. No politician, no Wall Street financier, no journalist, can say otherwise. The discrepancies lie with the principle method of economic response to this crisis. Some politicians point out the unemployment rate and call down the powers of Congress to decrease it. Others still look to the devious inflation percentage that lurks behind, as a shadow, ready to cut purchasing power and increase prices. Unfortunately, as the Phillips curve warns us, the two are irreconcilable. Lower inflation invites higher unemployment, and increasing employment beckons heightened prices. The discrepancies lie with the classic battle between controlling inflation and unemployment. Though it may be the less popular choice, politicians should concentrate on curbing inflation as it has a great impact on our economy and is a more accurate indicator of economic stability.
Euro area was in recession until the beginning of 2014 (Fig. 1, Appendix 1). The European Central Bank (ECB) had been cutting the basic rate until it almost reached zero in 2014 (Fig. 2, Appendix 1). Inflation was relatively low and a short period of deflation was observed in the beginning of 2015 (Fig. 3, Appendix 1). Although the unemployment rate was decreasing, it remained high in 2013 and 2014 (Fig. 4, Appendix 1).