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Inflation & Unemployment - Phillips
Inflation & Unemployment - Phillips
Types of Unemployment:
Frictional Unemployment:
Unemployment caused
when people move from job to job
and claim benefit in the meantime
The quality of the information
available for job seekers is crucial
to the extent of the seriousness of
frictional unemployment
Types of Unemployment:
Structural Unemployment:
Unemployment caused
as a result of the decline of industries
and the inability of former employees to
move
into jobs being created
in new industries
Seasonal Unemployment:
Unemployment caused because of the
seasonal nature of employment
tourism, agriculture, sports etc.
CYCLICAL UNEMPLOYMENT:
Caused by a general lack of
demand in the economy this type
of unemployment
may be widespread across a range
of industries and sectors
Keynes saw unemployment as
primarily a lack of demand in the
economy which could be influenced
by the government
Okuns Law:
1.
2.
3.
4.
Causes of Inflation:
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:
Combination of both:
Costs of inflation:
Philips Curve:
It is a statistical relationship
between unemployment and
money wage inflation.
Rate of inflation= rate of wage
growth less rate of productivity
growth.
Phillips Curve:
Wage growth %
(Inflation)
2.5%
1.5%
4%
6%
PC1
Unemployment (%)
Long Run PC
inflation
3.0%
2.0%
1.0%
PC1
7%
PC3
PC2
Unemployment
Countering inflation:
Demand -pull Reduce demand by higher taxation, lower govt.
expenditure, lower govt borrowing, higher
interest rates
Cost push
Import
factors
Expectations
of inflation