INFLATION AND UNEPMLOYMENT
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This document discusses different types of unemployment and inflation. It defines demand-pull and cost-push inflation. Demand-pull inflation occurs when aggregate demand increases prices, while cost-push inflation is caused by increases in costs of production. The document also notes that stagflation involves a falling output and rising prices, which can potentially be caused by increases in costs.
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INFLATION AND UNEPMLOYMENT
- 3. The inflation rate is the percentage change in the price level. The Phillips Curve shows the relationship between the inflation rate and the unemployment rate.
- 4. Upward and downward movements Measured by considering the growth rate of real gross domestic product Expansion and contraction in a business cycle are self-reinforcing and cumulative in effect Wake like movement in economic activity Economy-wide fluctuations in production or economic activity over sveral months or years
- 5. Peek /Boom Could be situation where the number jobs more than the number of workers- lead to increase in wages,price,interest and profit Economy full employment A prosperity period More investment from business optimism Economy experience a high level of output and trade,higher employment levels and income
- 6. Recession Decline in consumption expenditure and investment level A reduction in aggregate income in terms of wage and profit A decrease in yhe volume of output,trade and transactions An increase in the level of unemployment
- 7. Trough Minimum point recession ends(real GDP stops falling) Will last until there is an increase in real GDP Period of great suffering and hardship facing by society Unemployment rates will be higher and will create many problems The overall economic activity will fall to the lowest level The worst phase pf business cycle
- 8. Definition unemployment Unemployment rate Full employment • A situation where labour force participants are available and willing to work but are unable to find jobs. • A percentage of the labour force who are unemployment and are actively seeking jobs • UR (%) = Number of unemployment/Labour force X 100% • The situation in the economy where al available resources are employed to produce goods and service
- 9. Frictional unemployment Cyclical unemployment Structural unemployment Seasonal unemployment • 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 graduates are actively seeking for a job • Occurs when there is a lack of jobs because of a downswing in a business cycle or a recession • Companies close down and the workers are laid off • Arises due to structural changes in the economy of a country • Respon quickly meet changing demands,technological or comprtition • Arises due to seasonal variation in the activities of particular industries • Caused by climatic changes,fashion or inherent nature
- 10. Effect of unemployment Effect on the economy Effect on individuals and society Loss in government revenue obtain from personal taxes Loss of income and self respect Reduce development activities of the economy Loss of job skills Lead to slow economic growth and low output Socials and political problems
- 11. Monetary policy Fiscal policy Direct control measures Open market operation – Purchase of securities or short term bonds Decrease in taxes Providing training and technical education Lowering the reserves requirement Increase in government expenditure Development of new land Lowering the discount rate Lowering the interest rate Job creation in varios sectors in an economy
- 12. Definition Measure inflation • 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 economy • Stagflation- when an economy experiences high unemployment and rapid inflation simultaneously • Inflation rate= CPI this year – CPI previous year/CPI previous years X 100 • CPI (index that measure changes inn the average price of consumer goods and services • Disinflation a reduction in the rate of inflation
- 13. Demandpull inflation Costpush inflation • When aggregate demand cannot meet the aggregate supply • Increase in the general price level associated with an increase in the cost of production • Factors • 1)Wage-push inflation • 2)Profit-push inflation • 3)Import –push inflation
- 15. Monetary policy Fiscal policy Direct control and rationing Open market operation-selling of securities or short term bonds Increase in taxes Price control and rationing Raising the reserve requirement Decrease in government spending Anti-hoarding campaign Raising the discount rate Raising the interest rate Selective credit control policy Compulsory savings
- 16. Demand-pull inflation is inflation initiated by an increase in aggregate demand. • Cost-push, or supply-side, inflation is inflation caused by an increase in costs.
- 17. Increase in AD can be due to a fiscal or monetary policy, thus increasing prices
- 18. Upward shift of the AS will be due to increase in costs due to increase in price of inputs.
- 19. Stagflation occurs when output is falling at the same time that prices are rising. One possible cause of stagflation is an increase in costs.
- 21. Civilian Noninstitutional Adult Population All civilians 16 years of age and older Excludes institutionalized in prisons or mental hospitals Excludes those in military Labor force Those in the adult population who are either working or looking for work 21
- 22. Unemployed Those with no job who are looking for work Unemployment rate Measures the percentage of those in the labor force who are unemployed Equals the number unemployed divided by the number in the labor force Does not include discouraged workers Discouraged workers Those who are no longer looking for work but are unemployed 22
- 23. Decline in the unemployment rate over last 20 years Overall growth in the economy Relatively fewer teenagers in the work force Unemployment rate says nothing about who is unemployed or for how long – differs across Race Gender Age Geographical area Occupational group 23
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- 26. REFERENCES