The link between inflation and unemployment economics essay

Even the fastest growing Chinese economy is not totally immune to it. The purpose of this research is to analyze the relationship that exists between these two macroeconomic variables, which affect every nation as well as an individual.

The link between inflation and unemployment economics essay

Back in first-year economics we learned that there is a tradeoff between unemployment and inflation, so you can't really have both low inflation and low unemployment at the same time. Do economists still consider that to be true? The Magazine of Economic Justice and is available at http: The trade-off between inflation and unemployment was first reported by A.

Phillips in —and so has been christened the Phillips curve. The simple intuition behind this trade-off is that as unemployment falls, workers are empowered to push for higher wages. Firms try to pass these higher wage costs on to consumers, resulting in higher prices and an inflationary buildup in the economy.

The trade-off suggested by the Phillips curve implies that policymakers can target low inflation rates or low unemployment, but not both. During the s, monetarists emphasized price stability low inflationwhile Keynesians more often emphasized job creation.

The experience of so-called stagflation in the s, with simultaneously high rates of both inflation and unemployment, began to discredit the idea of a stable trade-off between the two. Not only are estimates of it notoriously imprecise, the rate itself evidently changes over time.

This trend reversed itself in the s, as officially reported unemployment fell. In the latter half of the s, U. In the later Clinton years many economists warned that if unemployment was brought any lower, inflationary pressures might spin out of control.

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But growth in these years did not spill over into accelerating inflation. The United States, apparently, had achieved the Goldilocks state—everything just right! What sustained this combination of low inflation and low unemployment?

The full story, however, has to do with class conflict and the relatively weak position of workers in the s. Consequently, unionization rates and the real value of the minimum wage each fell precipitously between the late s and the s.

The period of stagflation, in contrast, had been one of labor militancy and rising wages. The long period of stable prices and low interest rates in the United States now seems to be coming to a close.

The cost of the Iraq War and rising oil prices, among other factors, have fueled expectations of a resurgence of inflation.

The link between inflation and unemployment economics essay

With inflation rising albeit slowly, and still relatively mild at around 4. But these fears of inflation are probably misplaced.

She completed her Ph. Did you find this article useful? Please consider supporting our work by donating or subscribing.Inflation and Unemployment Rate Ans Essay CHAPTER 35 MULTIPLE CHOICE 1.

Link between inflation and interest rates Interest rates can influence the rate of inflation and the rate of economic growth. The Bank of England change the 'base' interest rate to try and target the government's inflation rate of 2% +/-1; Generally, an increase in inflation leads to higher interest rates. In other words the trade-off between inflation and unemployment rate does not exist, except in the same year, and in the long run unemployment is a positive function with inflation (Niskanen ). Namibia, using the time series data from , exhibits the presence of stagflation in its economy. A good example of link between unemployment and inflation can be seen in the United States. The graph below shows the history of unemployment and inflation in the United States since The four decades of data illustrates some of the causes of rising or falling inflation.

The natural rate of unemployment depends upon: a. the rate of growth of the money supply c. the inflation rate b. the interest rate d. none of the above ANS: D 2. In other words the trade-off between inflation and unemployment rate does not exist, except in the same year, and in the long run unemployment is a positive function with inflation (Niskanen ).

Namibia, using the time series data from , exhibits the presence of stagflation in its economy. off between unemployment and inflation depends on the notion of excess demand. As long as aggregate demand exceeds economic capacity, the unemployment rate will tend to fall, and vice versa.

Essay about Economic: Economics and Moderate Unemployment Rate. the fund rate has been down to zero since then.

Economics Essays: Link between inflation and interest rates

The unemployment rate has kept rising from under 5% to . However, the relationship between inflation and unemployment is still controversial; according to history, it is likely that how the economists’ thinking about the relationship evolves over time will mostly depends on how the economy develops in the future.

Link between inflation and interest rates Interest rates can influence the rate of inflation and the rate of economic growth. The Bank of England change the 'base' interest rate to try and target the government's inflation rate of 2% +/-1; Generally, an increase in inflation leads to higher interest rates.

Essay on Inflation: Types, Causes and Effects