PRESENTATION ON PHILIP’SCURVE AND OKUN’S LAWPresented by:Hareem Syed&Iffrah Akhtar
Understand relationships among output,unemployment, and inflation. United Kingdom the sixth-largest nationaleconomy in the world measured by nominal GDP. When studying economy it is important to examinethe relationship between the level of output andunemployment and price and unemployment.INTRODUCTION
PHILLIP CURVE The Phillips curve shows the relationship betweenunemployment and inflation in an economy. Founder Alban William Phillips In 1958, AW Phillips plotted 95 years of data of UK wageinflation against unemployment. It seemed to suggest a short-run trade-off betweenunemployment and inflation.
OKUN’S LAW BY ARTHUR OKUN (1960S) This law describes a negative relationship betweenGDP and unemployment. Explanation according to FRB of St Louis The following equation illustrates how there exists anegative relationship between output andunemployment: Total employment= Labor Force - unemployed
UNDERSTANDING THE NEGATIVE RELATIONSHIP Originally Okun stated that the economy experienced a 1 percentagepoint increase in unemployment for every 3 percentage pointdecrease in actual GDP. In order to understand why the relationship between unemploymentand output is not one to one, its important to keep associated factorsin mind such as. Changes in the number of hours worked per person. Changes in labor productivity.
Data from years 1980 to 2012 Green line represents GDP Red line represents unemployment Unemployment rates and GDP fluctuations
ANALYSIS Graphical analysis to further explain therelationship may it be positive or negative. Data from 1980 to 1983- positive relationship Data from 1986 to 1990-positive relationship Reason Employment Protection Legislation
WHY POSITIVE? At times GDP and unemployment rates usually go together. Such a relationship between GDP and unemployment ratesis important in two ways.
ANALYSIS Data from 1996 to 2006 – negative relationship:unemployment falling, GDP increasing. Reason: multiplier effect. Data from 2010 to 2011- negative relationship:unemployment increase, GDP falling.
PHILLIP CURVE ANALYSIS Graph represents Phillip Curve of UK Data from 1980-2012 Red line represents unemployment blue line represents inflation
ANALYSIS From 1980-1981 shows a trade off between inflation andunemployment. From 1982-1988, unemployment is greater than inflation. From 1988-2008 inflation and unemployment are movingat steady level.