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2e - Inflation & Unemployment

ìnlation

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6 views4 pages

2e - Inflation & Unemployment

ìnlation

Uploaded by

quynhnguyenbaogiao20
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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INFLATION & UNEMPLOYMENT

I - INFLATION:

1. Denfinition:
a. Inflation: Inflation is a situation where the general price level of the
economy increases over a certain period of time.
b. Deflation: is a situation where the general price level of the economy
decreases over a certain period of time.
c. The general price level (or price index): is the average price of all
goods and services in the economy in this period compared to the base
period.
d. The inflation rate—the percentage change in the overall price level—
varies greatly over time and across countries.
2. Measurement:
a. The level of inflation is measured by the inflation rate (denoted as If) -
which is the percentage increase in the general price level of this period
compared to the previous period.
b. There are three types of price indexes used to calculate the inflation
rate:
+ Consumer Price Index (CPI)
+ Producer Price Index (PPI)
+ GDP Deflator (Id)
3. Cause:
a. Demand-pull inflation:Caused by increased demand exceeding supply.
b. Cost-push inflation: Triggered by rising production costs (e.g., raw
materials, wages).
c. Inflation due to expectations: Consumers and businesses expect future
price increases, fueling current inflation

4. Impacts:
a. Positive: Encourages spending and investment at moderate levels.
b. Negative:

+ Reduces purchasing power.

+ Hurts people with fixed incomes

+ Creates economic instability.

5. Types of Inflation:

a. Moderate inflation: Below 10% annually.


b. Galloping inflation: is a type of inflation that is two or three digits
(20%, 200%...) a year. Money loses value rapidly.
c. Hyperinflation: is a type of inflation that is out of control. The
currency loses its value severely.

II - UNEMPLOYMENT:

1. Definition:

a. Unemployed are people of working age who are able to work and are
unemployed and looking for work.
b. The labor force is people of working age who are able to work and are
employed or looking for work.
c. Unemployment rate is the percentage of unemployed people in the
labor force

2. Measurement:

a. The labor force is people aged 15 years or older who are able and
willing to work.
b. Unemployment rate is the percentage (%) between the number of
unemployed people and the labor force over a period of time.
3. Impacts:

a. For individuals: the life and family of unemployed people will be more
difficult. In addition, if unemployed, professional skills will be lost.
b. For society:

+ Unemployment increases => social evils and crime increase

+ The cost of dealing with evils and subsidies will increase.

--> The state budget is in deficit

4. Classification:

a. Temporary unemployment: includes people who quit their old jobs and
find new jobs. Or students looking for a job.
b. Structural unemployment: is a form caused by the introduction of new
products to replace old, outdated ones.
c. Cyclical unemployment: only occurs when the economy is in recession.
But when the economy recovers, the unemployment cycle will end.

III - RELATIONSHIP OF INFLATION AND UNEMPLOYMENT:

 The relationship between inflation and unemployment is represented by the


Phillips curve.
 Divided into two types: short-term and long-term.:

a. In the short-term: When aggregate demand increases, the output of goods


will rise accordingly. This leads to an increase in demand

=> The unemployment rate to decrease.

b. In the long term: the Phillips Curve becomes a vertical line at the natural
rate of unemployment

+ There is no permanent trade-off between inflation and unemployment.


+Regardless of the inflation rate, unemployment will return to its natural
rate

 Include:

a. In the short term, inflation and unemployment are inversely related due
to changes in aggregate demand.
b. In the long term, unemployment is determined by structural factors,
and inflation has no direct effect on it. Instead, inflation depends on
monetary policy and supply-demand conditions.

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