Phillip's curve and Okun Law of UK

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Talks about the relationship of Okun law and Phillip curve by taking UK's data in account.

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Phillip's curve and Okun Law of UK

  1. 1. PRESENTATION ON PHILIP’SCURVE AND OKUN’S LAWPresented by:Hareem Syed&Iffrah Akhtar
  2. 2.  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
  3. 3. DEFINITIONS
  4. 4. 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.
  5. 5. 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
  6. 6. 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.
  7. 7. TWO VERSIONS OF OKUN’S LAW
  8. 8. -6-4-2024680246810121419801982198419861988199019921994199619982000200220042006200820102012unemploymentOkuns lawunemploymGDP
  9. 9.  Data from years 1980 to 2012 Green line represents GDP Red line represents unemployment Unemployment rates and GDP fluctuations
  10. 10. 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
  11. 11. WHY POSITIVE? At times GDP and unemployment rates usually go together. Such a relationship between GDP and unemployment ratesis important in two ways.
  12. 12. 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.
  13. 13. CONCLUSION OF OKUN’S LAW
  14. 14. -505101520198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012unemploymentInflation
  15. 15. PHILLIP CURVE ANALYSIS Graph represents Phillip Curve of UK Data from 1980-2012 Red line represents unemployment blue line represents inflation
  16. 16. 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.
  17. 17. Conclusion of Philips Law

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