Chapter 6 inflation and unemployment

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Chapter 6 inflation and unemployment

  1. 1. PREPARED BY :N U R A MI R A B I N T I MD L AZI 30D L S 12F 1030
  2. 2. Upward and downward movements Measured byconsidering the growth Wake like movement in rate of real gross economic activity domestic product Expansion and Economy-wide contraction in a business fluctuations in cycle are self-reinforcing production or economic and cumulative in effect activity over sveral months or years
  3. 3. Economy full Peek /Boom A prosperity period employmentCould be situation where Economy experience a the number jobs more high level of output than the number of More investment from and trade,higherworkers- lead to increase business optimism employment levels and in wages,price,interest income and profit
  4. 4. RecessionDecline in consumption A decrease in yhe expenditure and volume of output,trade investment level and transactions A reduction in aggregate income in terms of wage An increase in the level and profit of unemployment
  5. 5. Minimum point Will last until there Trough recession ends(real is an increase in real GDP stops falling) GDP Period of great Unemployment The overall suffering and rates will be higher economic activityhardship facing by and will create will fall to the society many problems lowest levelThe worst phase pf business cycle
  6. 6. Recovery Period of revival leading to an upturn of the economyInitiated by government expenditure,changesin production techniques,new innovations and exploitation of new sources technology Government expenditure stimulate the demand for consumption of goodsEmployment level,output,income,wages,price and profit start to increase
  7. 7. PeakOutput – maximum level Unemployment – lowest level Recession Output - declines Unemployment - increase TroughOutput – minimum level Unemployment – highest level Recovery Output – increase Unemployment - declines
  8. 8. • A situation where labour force participants Definition are available and willing to work but are unable to find jobs.unemployment • A percentage of the labour force who areUnemployment unemployment and are actively seeking jobs • UR (%) = Number of unemployment/Labour rate force X 100% • The situation in the economy where al Full available resources are employed to produce goods and service employment
  9. 9. • Occurs when people are in between jobs,entering and reentering the labour force • Ex : peolple quit their jobs for a better positions or higher wages or when fresh Frictional graduates are actively seeking for a jobunemployment • Occurs when there is a lack of jobs because of a downswing in a business cycle or a recession Cyclical • Companies close down and the workers are laid offunemployment • Arises due to structural changes in the economy of a country Structural • Respon quickly meet changing demands,technological or comprtitionunemployment • Arises due to seasonal variation in the activities of particular industries Seasonal • Caused by climatic changes,fashion or inherent natureunemployment
  10. 10. Effect of unemployment Effect on the economy Effect on individuals and Loss in government revenue society obtain from personal taxes Loss of income and self Reduce development respect activities of the economy Lead to slow economic Loss of job skills growth and low output Socials and political problems
  11. 11. Monetary policy Fiscal policy Direct control measuresOpen market operation – Purchase Providing training and technical Decrease in taxes of securities or short term bonds education Increase in governmentLowering the reserves requirement Development of new land expenditure Job creation in varios sectors in an Lowering the discount rate economy Lowering the interest rate
  12. 12. • A continuous increase in the general price level of goods and services in the economy • Deflection- a decrease in the general price level of goods and services in the economyDefinition • Stagflation- when an economy experiences high unemployment and rapid inflation simultaneously • Inflation rate= CPI this year – CPI previous year/CPI previous years X 100Measure • CPI (index that measure changes inn the average price of consumer goods and servicesinflation • Disinflation a reduction in the rate of inflation
  13. 13. Demand- pull • When aggregate demand cannot meet the aggregate supplyinflation • Increase in the general price level associated Cost- with an increase in the cost of production • Factors push • 1)Wage-push inflation • 2)Profit-push inflationinflation • 3)Import –push inflation
  14. 14. Balance of Distribution trade of incomeProduction Savings
  15. 15. Monetary Direct control Fiscal policy policy and rationing Open marketoperation-selling Price control and Increase in taxes of securities or rationingshort term bonds Raising the Decrease in Anti-hoarding reserve government campaign requirement spending Raising the Compulsory discount rate savings Raising the interest rate Selective credit control policy

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