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Relation of inflation and unemployment
Macro economics question and answer
Relation of inflation and unemployment
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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. Many individuals have questioned the validity of macroeconomic theory. In a 1999 editorial, Frank Riessman wrote that "practically all predictions of traditional economists ha...
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.
According to Trading Economics, the unemployment rate has grown from 6.6 percent in January 2015 to 7.2 percent in January 2016. In Dinner Party Economic it explains the relationship between inflation and cyclical unemployment and how both topics never occur at the same time, “We don’t see inflation and cyclical unemployment occurring at the same time, which is why economists often talk about the unemployment and inflation as a trade-off”,
Revealing the hidden side of life in clarity, Freakonomics draws in all economists with unmentioned assumptions which are upheld with reasoned correlation, bonding subjects that unveil misconceptions, concluding on economic pattern limitations. Effectively, they lead their audience on their conviction route as smoothly as possible. Nice job on not screwing the map up. Allowing them to achieve their goals, this was to change people’s views. By the time a person puts down Freakonomics, they have been led to conviction about all their claims because Dubner & Levitt know that in order to change someone else’s way of thinking you must change your own.
Figure 4 shows the curve sloped downward from left to right and that inflation and unemployment are inversely related. The negative relationship between inflation rate and unemployment rate can be explained by the aggregate demand, AD and aggregate supply, AS model. An unexpectedly large increase in AD raises the inflation rate and increase real GDP, which lowers the unemployment rate. Hence, higher inflation is associated with lower unemployment shown by a movement along a short run PC. Thus, when there is high inflation, there is low unemployment and when there is low inflation, there is high unemployment. For example, based on Table 1 and Table 2 in ...
For what has been a very, very long time, our elected representatives have sought to achieve “full employment” as a national goal….but full employment has been suspect as a possible cause of inflation, and is therefore weakened by decisions of the Federal Reserve, in an attempt to retard inflation. In terms of causes, unemployment has changed; the character, degree of severity, possible solutions of unemployment over the last ten years or so have been reduced, and has morphed in terms of just who is experiencing the unemployment and the suggestions for answering the problem. It has been the traditional fundamental trades, like manufacturing, viewed as part of the shift in the economy towards the new information age model, as workers transition from a manufacturing economy to a service economy, all the while over-coming the obstacles set forth by our own government.
The first article about the recession was titled, “Calls for Tax Cuts and Money Ease.” The editor of this article sees unhappy and disappointed about the economy and ford handling of it. He talks about when Ford moved into the white house, “ he promised to take control of federal spending which he regards as the principal on inflation.” The editor explains the country and congress disagree with Ford decision to cut spending and believe he should cut taxes to help the people that are struggling.
I intend to analyse these publications and based on evidence collected, speculate as to what both these renowned economic minds would suggest as a solution to the problems caused by the economic recession, what they would think of the government’s approach so far at setting the economy back on track. I will study their works and from them I shall them come to a conclusion as to what each of these men might consider the right approach to the problems brought on by the economic recession.
The subject of controlling the national economy presents professionals and ordinary citizens alike with fodder for lively discussion and debate. It is also a topic whose popularity ebbs and flows with the times. The focus in recent years has been on the use of monetary policy. But do not tell that to the politicians. Some people will not let go of what they are familiar with and to what gets them votes. So Congress and the President constantly battle to find the most “correct” fiscal policy to pursue given their assessment of the economic conditions at any point in time. And therein lays a potential weakness in the argument that favors the use of fiscal policy to smooth the troughs and peaks of the United States economic machines.
My research of Classical Economics and Keynesian Economics has given me the opportunity to form an opinion on this greatly debated topic in economics. After researching this topic in great lengths, I have determined the Keynesian Economics far exceeds greatness for America compared to that of Classical Economics. I will begin my paper by first addressing my understanding of both economic theories, I will then compare and contrast both theories, and end my paper with my opinions on why I believe Keynesian Economics is what is best for America.
The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique for thinking, which helps the possessor to draw correct conclusions. The ideas of economists and politicians, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist." (John Maynard Keynes, the General Theory of Employment, Interest and Money p 383)
Some people believe that recessions are neither good nor bad but simply part of the natural survival of the fittest in the business world. Actually, it is not true. In The Costs of Unemployment, the authors tell us both the good and bad influences of recessions.
As the United States economy is gradually recuperating, many employments are as yet being lost day by day the same number of more are additionally made. Despite the fact that there are many components that give a glance at how the economy is getting along, a factor one ought to precisely look at before settling on such choice is the unemployment rate. Unemployment rate additionally has diverse variables that decide the rate. Numerous specialists are losing their present employments since they don't have the current mechanical suitability. Others are losing their jobs because of occupations moving abroad. Be that as it may, since the genuine unemployment rate is hard to gauge precisely, the rate can without much of a stretch slope and decay. High unemployment causes less utilization of products and services and less payment of taxes brings about higher government having to borrow requirements from other countries. The effect of unemployment is seen with the people and family abridging the utilization definitely to meet money related commitment and variables like this have unfriendly effect all in all economy. It likewise decreases the yield of merchandise and ventures which could have created by jobless work drive.Job
The United States was in a recession from December of 2007 to June of 2009, according to the National Bureau of Economic Research (National). During that time the unemployment rate was in the range of 5% to 9.5% (Labor). What is confusing to many American is that while they are being told the economy is growing and the recession is over, the unemployment rate is still fairly high. In fact, only four months after the recession “ended,” in October 2009 the unemployment rate peaked at 10.1%. It has been steadily decreasing over the past two years to its current 9.0%. President Obama proposed the American Jobs Act to rectify the unemployment problem in...
“The January employment report provides yet one more piece of evidence that the chance of recession this year is truly remote,” said Bernard Baumohl, chief global economist for the Economic Outlook Group in Princeton, N.J. “Economic activity should accelerate this year as rising employment, income, home values and confidence drive more spending,” and he was right. “The financial markets are leery,” said Michael Hanson, a senior economist at Bank of America Merrill Lynch, “but the labor market still looks like it’s continuing to grow.” The new figures suggested that the economy was holding up even with a slowdown in China, growing risks in emerging markets and uproar in the stock market. The slowdown in Chinas production gives the USA the chance to compete with products, quality, and pricing. The decrease in unemployment rate has the Federal Reserve thinking if they should increase the benchmark interest rate, in other words inflate the cost of living or not, according to the NY Times article, “Slower Growth in Jobs Report May Give Fed Pause on Interest Rates.” The economy is getting better but is not yet at its peak or strong enough for an inflation to take place but if the economy keeps going up in the next year or two expect it to happen. Most of our countries unemployment rate decrease is due to all the workers retiring which helps companies promote workers and have more entry positons for new employees. Also the raises in salaries and hourly rates help discouraged workers be more attracted to go back into the work
Inflation according to Pettinger (2014) links the increase in prices with unemployment because it discourages businesses to invest, creating the uncertainty and lowers the investment in turn there are lesser jobs created on the market. Recession is a temporary decline in the economic cycle leading to the reduction of industrial activity because of this it affects the business sector and consumer spending creating massive layback on the labor market thus workers are lay off from employment because of the losses. Business cycles are unpredictable when there is a contradiction in the economic perspective, businesses are dealt with reduced revenues leading to workers being lay