SlideShare a Scribd company logo
1 of 21
Inflation & unemployment
Inflation & Phillips curve: ,[object Object],[object Object]
Causes of Inflation: ,[object Object],[object Object]
Demand pull : Increase in AD can be due to a fiscal or monetary policy, thus increasing prices
Cost push: Upward shift of the AS will be due to increase in costs due to increase in price of inputs.
Stagflation: ,[object Object],[object Object]
Combination of both:
Costs of inflation: ,[object Object],[object Object],[object Object],[object Object],[object Object]
Philips Curve: ,[object Object],[object Object]
Phillips Curve: ,[object Object],[object Object],[object Object],[object Object]
[object Object],Wage growth % (Inflation) Unemployment (%) The Phillips Curve shows an inverse relationship between inflation and unemployment. It suggested that if governments wanted to reduce unemployment it had to accept higher inflation as a trade-off. Money illusion – wage rates rising but individuals not factoring in inflation on real wage rates. 1.5% 6% 4% 2.5% PC1
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Long run Phillips curve: ,[object Object],[object Object]
[object Object],The Philips Curve Unemployment Long Run PC PC1 PC2 PC3 Assume the economy starts with an inflation rate of 1% but very high unemployment at 7%. Government takes measures to reduce unemployment by an expansionary fiscal policy that pushes AD to the right (see the AD/AS diagram on slide 15)  7% 2.0% 1.0% There is a short term fall in unemployment but at a cost of higher inflation. Individuals now base their wage negotiations on expectations of higher inflation in the next period. If higher wages are granted then firms costs rise – they start to shed labour and unemployment creeps back up to 7% again. 3.0% To counter the rise in unemployment, government once again injects resources into the economy – the result is a short-term fall in unemployment but higher inflation. This higher inflation fuels further expectation of higher inflation and so the process continues. The long run Phillips Curve is vertical at the natural rate of unemployment. This is how economists have explained the movements in the Phillips Curve and it is termed the  Expectations Augmented Phillips Curve.
[object Object],[object Object]
Countering inflation: Demand -pull Reduce demand by higher taxation, lower govt. expenditure, lower govt borrowing, higher interest rates Cost push Take steps to reduce production costs by deregulating labour markets, encouraging greater productivity, apply control over wages and prices Import factors reduce quantity of imports or their prices via trade policies.
Controlling inflation (cont) Excessive growth on money supply Reduce money supply by cutting down on public sector borrowing Funding Govt borrowing from non bank Reduce bank lending Maintain interest rates Expectations of inflation Pursue policies which indicate Govt’s determination to reduce inflation
Types of Unemployment: ,[object Object],[object Object],[object Object]
Types of Unemployment: ,[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object]
Okun’s Law: ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

More Related Content

What's hot

inflation- cost push and demand pull
inflation- cost push and demand pullinflation- cost push and demand pull
inflation- cost push and demand pull
Vandana029
 
Phillips Curve, Inflation & Interest Rate
Phillips Curve, Inflation & Interest RatePhillips Curve, Inflation & Interest Rate
Phillips Curve, Inflation & Interest Rate
Zeeshan Ali
 

What's hot (20)

INFLATION : NATURE,EFFECT AND CONTROL
INFLATION : NATURE,EFFECT AND CONTROL INFLATION : NATURE,EFFECT AND CONTROL
INFLATION : NATURE,EFFECT AND CONTROL
 
Inflation
InflationInflation
Inflation
 
Classical theory of employment
Classical theory of employmentClassical theory of employment
Classical theory of employment
 
inflation- cost push and demand pull
inflation- cost push and demand pullinflation- cost push and demand pull
inflation- cost push and demand pull
 
Theories of economic development
Theories of economic developmentTheories of economic development
Theories of economic development
 
Harrod domer model PPT
Harrod domer model PPTHarrod domer model PPT
Harrod domer model PPT
 
Financial theory of investment
Financial theory of investmentFinancial theory of investment
Financial theory of investment
 
Balanced & unbalanced growth
Balanced & unbalanced growthBalanced & unbalanced growth
Balanced & unbalanced growth
 
Business cycle
Business cycleBusiness cycle
Business cycle
 
Lewis model
Lewis modelLewis model
Lewis model
 
Causes and effects of inflation
Causes and effects of inflationCauses and effects of inflation
Causes and effects of inflation
 
HO THEORY MODERN THEORY OF INTERNATIONAL TRADE
HO THEORY MODERN THEORY OF INTERNATIONAL TRADEHO THEORY MODERN THEORY OF INTERNATIONAL TRADE
HO THEORY MODERN THEORY OF INTERNATIONAL TRADE
 
Phillips Curve, Inflation & Interest Rate
Phillips Curve, Inflation & Interest RatePhillips Curve, Inflation & Interest Rate
Phillips Curve, Inflation & Interest Rate
 
Meeting 5 - Leontief Paradox (International Economics)
Meeting 5 - Leontief Paradox (International Economics)Meeting 5 - Leontief Paradox (International Economics)
Meeting 5 - Leontief Paradox (International Economics)
 
Measures to control inflation
Measures to control inflationMeasures to control inflation
Measures to control inflation
 
Inflation
InflationInflation
Inflation
 
Inflation and deflation
Inflation and deflation   Inflation and deflation
Inflation and deflation
 
Restatement of quantity theory of money
Restatement of quantity theory of moneyRestatement of quantity theory of money
Restatement of quantity theory of money
 
The Heckscher-Ohlin theory of international trade/ Modern International Trade...
The Heckscher-Ohlin theory of international trade/ Modern International Trade...The Heckscher-Ohlin theory of international trade/ Modern International Trade...
The Heckscher-Ohlin theory of international trade/ Modern International Trade...
 
Kuznets Hypothesis Economic Growth and Income Inequality
Kuznets Hypothesis Economic Growth and Income InequalityKuznets Hypothesis Economic Growth and Income Inequality
Kuznets Hypothesis Economic Growth and Income Inequality
 

Similar to Inflation & unemployment

Inflation+&+unemployment
Inflation+&+unemploymentInflation+&+unemployment
Inflation+&+unemployment
videoaakash15
 
Macro Economics: Phillips Curve, Inflation and Interest Rate
Macro Economics: Phillips Curve, Inflation and Interest RateMacro Economics: Phillips Curve, Inflation and Interest Rate
Macro Economics: Phillips Curve, Inflation and Interest Rate
Zeeshan Ali
 
AN EASSAY ON PHILLIPS CURVE
AN EASSAY ON PHILLIPS CURVEAN EASSAY ON PHILLIPS CURVE
AN EASSAY ON PHILLIPS CURVE
Shubham Soni
 
Module33 typesofinflation,disinflation,anddeflation
Module33 typesofinflation,disinflation,anddeflationModule33 typesofinflation,disinflation,anddeflation
Module33 typesofinflation,disinflation,anddeflation
American School of Guatemala
 
Module 34 inflation and umemployment the phillips curve
Module 34 inflation and umemployment the phillips curveModule 34 inflation and umemployment the phillips curve
Module 34 inflation and umemployment the phillips curve
American School of Guatemala
 

Similar to Inflation & unemployment (20)

Inflationunemployment 120127094754-phpapp02
Inflationunemployment 120127094754-phpapp02Inflationunemployment 120127094754-phpapp02
Inflationunemployment 120127094754-phpapp02
 
Inflationunemployment 120127094754-phpapp02
Inflationunemployment 120127094754-phpapp02Inflationunemployment 120127094754-phpapp02
Inflationunemployment 120127094754-phpapp02
 
Inflation+&+unemployment
Inflation+&+unemploymentInflation+&+unemployment
Inflation+&+unemployment
 
Chapter 10 & 11
Chapter 10 & 11Chapter 10 & 11
Chapter 10 & 11
 
Unit3 hl
Unit3 hlUnit3 hl
Unit3 hl
 
Macro Economics: Phillips Curve, Inflation and Interest Rate
Macro Economics: Phillips Curve, Inflation and Interest RateMacro Economics: Phillips Curve, Inflation and Interest Rate
Macro Economics: Phillips Curve, Inflation and Interest Rate
 
Meeting 4 - Phillips curve (Macroeconomics)
Meeting 4 - Phillips curve (Macroeconomics)Meeting 4 - Phillips curve (Macroeconomics)
Meeting 4 - Phillips curve (Macroeconomics)
 
AN EASSAY ON PHILLIPS CURVE
AN EASSAY ON PHILLIPS CURVEAN EASSAY ON PHILLIPS CURVE
AN EASSAY ON PHILLIPS CURVE
 
Inflation
InflationInflation
Inflation
 
Module33 typesofinflation,disinflation,anddeflation
Module33 typesofinflation,disinflation,anddeflationModule33 typesofinflation,disinflation,anddeflation
Module33 typesofinflation,disinflation,anddeflation
 
Inflation
InflationInflation
Inflation
 
Philips curve
Philips curvePhilips curve
Philips curve
 
Inflation causes and its measures
Inflation causes and its measuresInflation causes and its measures
Inflation causes and its measures
 
theories of inflation and diff effects.pdf
theories of inflation and diff effects.pdftheories of inflation and diff effects.pdf
theories of inflation and diff effects.pdf
 
Module 34 inflation and umemployment the phillips curve
Module 34 inflation and umemployment the phillips curveModule 34 inflation and umemployment the phillips curve
Module 34 inflation and umemployment the phillips curve
 
Long run and short run Philips curve by A W Philips.
Long run and short run Philips curve by A W Philips.Long run and short run Philips curve by A W Philips.
Long run and short run Philips curve by A W Philips.
 
Inflation.pdf
Inflation.pdfInflation.pdf
Inflation.pdf
 
Inflation in srilanka
Inflation in srilankaInflation in srilanka
Inflation in srilanka
 
Inflation
InflationInflation
Inflation
 
Macroeconomics Report on Hyperinflation
Macroeconomics Report on HyperinflationMacroeconomics Report on Hyperinflation
Macroeconomics Report on Hyperinflation
 

More from Kinnar Majithia (20)

South korea final
South korea finalSouth korea final
South korea final
 
Fiscal policy
Fiscal policyFiscal policy
Fiscal policy
 
Business+cycles
Business+cyclesBusiness+cycles
Business+cycles
 
Business cycles 2
Business cycles 2Business cycles 2
Business cycles 2
 
Aggregate+demand+&supply
Aggregate+demand+&supplyAggregate+demand+&supply
Aggregate+demand+&supply
 
Aggregate demand &supply
Aggregate demand &supplyAggregate demand &supply
Aggregate demand &supply
 
National income accounting 1
National income accounting 1National income accounting 1
National income accounting 1
 
Lesson 18 weath-2
Lesson 18 weath-2Lesson 18 weath-2
Lesson 18 weath-2
 
Lesson 16 advanced tax
Lesson 16 advanced taxLesson 16 advanced tax
Lesson 16 advanced tax
 
Lesson 15
Lesson 15Lesson 15
Lesson 15
 
Lesson 14
Lesson 14Lesson 14
Lesson 14
 
Lesson 13
Lesson 13Lesson 13
Lesson 13
 
Lesson 12 deductions
Lesson 12 deductionsLesson 12 deductions
Lesson 12 deductions
 
Lesson 11
Lesson 11Lesson 11
Lesson 11
 
Lesson 10 clubbing of -income
Lesson 10 clubbing of -incomeLesson 10 clubbing of -income
Lesson 10 clubbing of -income
 
Lesson 9
Lesson 9Lesson 9
Lesson 9
 
Lesson 8 capital-gains
Lesson 8 capital-gainsLesson 8 capital-gains
Lesson 8 capital-gains
 
Lesson 7 income frm-bbusi
Lesson 7 income frm-bbusiLesson 7 income frm-bbusi
Lesson 7 income frm-bbusi
 
Lesson 6 income from house pro
Lesson 6 income from house proLesson 6 income from house pro
Lesson 6 income from house pro
 
Lesson 5 percs
Lesson 5 percsLesson 5 percs
Lesson 5 percs
 

Recently uploaded

The basics of sentences session 4pptx.pptx
The basics of sentences session 4pptx.pptxThe basics of sentences session 4pptx.pptx
The basics of sentences session 4pptx.pptx
heathfieldcps1
 
MSc Ag Genetics & Plant Breeding: Insights from Previous Year JNKVV Entrance ...
MSc Ag Genetics & Plant Breeding: Insights from Previous Year JNKVV Entrance ...MSc Ag Genetics & Plant Breeding: Insights from Previous Year JNKVV Entrance ...
MSc Ag Genetics & Plant Breeding: Insights from Previous Year JNKVV Entrance ...
Krashi Coaching
 

Recently uploaded (20)

Graduate Outcomes Presentation Slides - English (v3).pptx
Graduate Outcomes Presentation Slides - English (v3).pptxGraduate Outcomes Presentation Slides - English (v3).pptx
Graduate Outcomes Presentation Slides - English (v3).pptx
 
The Story of Village Palampur Class 9 Free Study Material PDF
The Story of Village Palampur Class 9 Free Study Material PDFThe Story of Village Palampur Class 9 Free Study Material PDF
The Story of Village Palampur Class 9 Free Study Material PDF
 
Dementia (Alzheimer & vasular dementia).
Dementia (Alzheimer & vasular dementia).Dementia (Alzheimer & vasular dementia).
Dementia (Alzheimer & vasular dementia).
 
Envelope of Discrepancy in Orthodontics: Enhancing Precision in Treatment
 Envelope of Discrepancy in Orthodontics: Enhancing Precision in Treatment Envelope of Discrepancy in Orthodontics: Enhancing Precision in Treatment
Envelope of Discrepancy in Orthodontics: Enhancing Precision in Treatment
 
ĐỀ THAM KHẢO KÌ THI TUYỂN SINH VÀO LỚP 10 MÔN TIẾNG ANH FORM 50 CÂU TRẮC NGHI...
ĐỀ THAM KHẢO KÌ THI TUYỂN SINH VÀO LỚP 10 MÔN TIẾNG ANH FORM 50 CÂU TRẮC NGHI...ĐỀ THAM KHẢO KÌ THI TUYỂN SINH VÀO LỚP 10 MÔN TIẾNG ANH FORM 50 CÂU TRẮC NGHI...
ĐỀ THAM KHẢO KÌ THI TUYỂN SINH VÀO LỚP 10 MÔN TIẾNG ANH FORM 50 CÂU TRẮC NGHI...
 
Championnat de France de Tennis de table/
Championnat de France de Tennis de table/Championnat de France de Tennis de table/
Championnat de France de Tennis de table/
 
The basics of sentences session 4pptx.pptx
The basics of sentences session 4pptx.pptxThe basics of sentences session 4pptx.pptx
The basics of sentences session 4pptx.pptx
 
How to Analyse Profit of a Sales Order in Odoo 17
How to Analyse Profit of a Sales Order in Odoo 17How to Analyse Profit of a Sales Order in Odoo 17
How to Analyse Profit of a Sales Order in Odoo 17
 
When Quality Assurance Meets Innovation in Higher Education - Report launch w...
When Quality Assurance Meets Innovation in Higher Education - Report launch w...When Quality Assurance Meets Innovation in Higher Education - Report launch w...
When Quality Assurance Meets Innovation in Higher Education - Report launch w...
 
e-Sealing at EADTU by Kamakshi Rajagopal
e-Sealing at EADTU by Kamakshi Rajagopale-Sealing at EADTU by Kamakshi Rajagopal
e-Sealing at EADTU by Kamakshi Rajagopal
 
Mattingly "AI and Prompt Design: LLMs with Text Classification and Open Source"
Mattingly "AI and Prompt Design: LLMs with Text Classification and Open Source"Mattingly "AI and Prompt Design: LLMs with Text Classification and Open Source"
Mattingly "AI and Prompt Design: LLMs with Text Classification and Open Source"
 
Sternal Fractures & Dislocations - EMGuidewire Radiology Reading Room
Sternal Fractures & Dislocations - EMGuidewire Radiology Reading RoomSternal Fractures & Dislocations - EMGuidewire Radiology Reading Room
Sternal Fractures & Dislocations - EMGuidewire Radiology Reading Room
 
An overview of the various scriptures in Hinduism
An overview of the various scriptures in HinduismAn overview of the various scriptures in Hinduism
An overview of the various scriptures in Hinduism
 
TỔNG HỢP HƠN 100 ĐỀ THI THỬ TỐT NGHIỆP THPT TOÁN 2024 - TỪ CÁC TRƯỜNG, TRƯỜNG...
TỔNG HỢP HƠN 100 ĐỀ THI THỬ TỐT NGHIỆP THPT TOÁN 2024 - TỪ CÁC TRƯỜNG, TRƯỜNG...TỔNG HỢP HƠN 100 ĐỀ THI THỬ TỐT NGHIỆP THPT TOÁN 2024 - TỪ CÁC TRƯỜNG, TRƯỜNG...
TỔNG HỢP HƠN 100 ĐỀ THI THỬ TỐT NGHIỆP THPT TOÁN 2024 - TỪ CÁC TRƯỜNG, TRƯỜNG...
 
Spring gala 2024 photo slideshow - Celebrating School-Community Partnerships
Spring gala 2024 photo slideshow - Celebrating School-Community PartnershipsSpring gala 2024 photo slideshow - Celebrating School-Community Partnerships
Spring gala 2024 photo slideshow - Celebrating School-Community Partnerships
 
Mattingly "AI & Prompt Design: Named Entity Recognition"
Mattingly "AI & Prompt Design: Named Entity Recognition"Mattingly "AI & Prompt Design: Named Entity Recognition"
Mattingly "AI & Prompt Design: Named Entity Recognition"
 
MOOD STABLIZERS DRUGS.pptx
MOOD     STABLIZERS           DRUGS.pptxMOOD     STABLIZERS           DRUGS.pptx
MOOD STABLIZERS DRUGS.pptx
 
IPL Online Quiz by Pragya; Question Set.
IPL Online Quiz by Pragya; Question Set.IPL Online Quiz by Pragya; Question Set.
IPL Online Quiz by Pragya; Question Set.
 
Mattingly "AI and Prompt Design: LLMs with NER"
Mattingly "AI and Prompt Design: LLMs with NER"Mattingly "AI and Prompt Design: LLMs with NER"
Mattingly "AI and Prompt Design: LLMs with NER"
 
MSc Ag Genetics & Plant Breeding: Insights from Previous Year JNKVV Entrance ...
MSc Ag Genetics & Plant Breeding: Insights from Previous Year JNKVV Entrance ...MSc Ag Genetics & Plant Breeding: Insights from Previous Year JNKVV Entrance ...
MSc Ag Genetics & Plant Breeding: Insights from Previous Year JNKVV Entrance ...
 

Inflation & unemployment

  • 2.
  • 3.
  • 4. Demand pull : Increase in AD can be due to a fiscal or monetary policy, thus increasing prices
  • 5. Cost push: Upward shift of the AS will be due to increase in costs due to increase in price of inputs.
  • 6.
  • 8.
  • 9.
  • 10.
  • 11.
  • 12.
  • 13.
  • 14.
  • 15.
  • 16. Countering inflation: Demand -pull Reduce demand by higher taxation, lower govt. expenditure, lower govt borrowing, higher interest rates Cost push Take steps to reduce production costs by deregulating labour markets, encouraging greater productivity, apply control over wages and prices Import factors reduce quantity of imports or their prices via trade policies.
  • 17. Controlling inflation (cont) Excessive growth on money supply Reduce money supply by cutting down on public sector borrowing Funding Govt borrowing from non bank Reduce bank lending Maintain interest rates Expectations of inflation Pursue policies which indicate Govt’s determination to reduce inflation
  • 18.
  • 19.
  • 20.
  • 21.