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Why government want to have low unemployment and low rate of inflation?
Wiki User
∙ 11y ago
Lower unemployment means there are more people with incomes this means the government will receive more income tax. Furthermore there are less people dependent on the government such as benefits therefore the government is spending less or they can use that money for healthcare, education or policing. More families with a higher income will result in higher consumption this means more money from VAT.
High inflation simply means an increase in price over a period of time, the government wants to keep inflation down as it means prices will not be ridiculously high.
Wiki User
∙ 11y ago
Wiki User
∙ 13y agoUnemployment is usually thought to be associated with general quality of life. Furthermore, if fewer people are out of work, then more are likely to be content with the governing itself. This is especially important in any sort of elected bureaucracy
Wiki User
∙ 11y agogovernment spending shold be increase
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How are the inflation and unemployment related in short run?
In the short run, there is a negative correlation between the changes in wages (normally growth rate) and the rate of unemployment. Changes in wages imply changes of inflation. This relationship is known as Phillips' Curve, in honour of William Phillips, who discovered it in 1958.Thus, the bigger the rate of inflation, the lower the unemployment. This appealing consequence made politicians think that they could get the level of employment they want just by creating more inflation.Eventually this was not true, and studies after these years showed that this correlation fell apart, and there were combinations of high unemployment and inflation.Why was that? The answer is expectations. If individuals know that governments (or central banks) will follow a weak monetary policy (increasing the circulation of money in the economy and therefore generating inflation) they will expect the rate of inflation to be high. Trade unions will endeavour to get rises in wages, and this will impede companies to hire more workers. Thus if the monetary authority increase inflation now, it would not get reduction of unemployment.
If inflation falls why would unemployment rise?
When economists look at inflation and unemployment in the short term, they see a rough inverse correlation between the two. When unemployment is high, inflation is low and when inflation is high, unemployment is low. This has presented a problem to regulators who want to limit both. This relationship between inflation and unemployment is the Phillips curve. The short term Phillips curve is a declining one. Fig 2.4.1-Short term Phillips curveThis is a rough estimation of a short-term Phillips curve. As you can see, inflation is inversely related to unemployment. The long-term Phillips curve, however, is different. Economists have noted that in the long run, there seems to be no correlation between inflation and unemployment.
How does government intervene to lower inflation or unemployment?
The government acts on inflation through The Federal Reserve. The Federal Reserve acts on inflation by targeting interest rates through the reserve requirement. When interest rates are high, people want to keep money in their bank accounts, and inflation decreases. When interest rates are low, people are more willing to spend their money and inflation increases. Once, the Federal Reserve actually pushed the United States into a recession once to battle especially high inflation. Ever since then, it has been very important for the Federal Reserve to keep inflation in check. The government, as demonstrated during the latest recession, enacts many different stimulus packages to help the economy recover and help unemployment come down from extremely high percentages.
What are the different kinds of inflation?
On the basis of rate of Inflation, there are different types of Inflation. They are:Creeping Inflation.Walking or Trotting Inflation.Running inflation.Hyper or Galloping Inflation.Open Inflation.Suppressed Inflation.On the basis of rate of Inflation, there are different types of Inflation. They are:Creeping Inflation.Walking or Trotting Inflation.Running inflation.Hyper or Galloping Inflation.Open Inflation.Suppressed Inflation.
Explain the short-run Philips curve and long-run Philips curve?
The Phillips Curve is the negative relationship between unemployment and inflation. If you want to have less unemployment the cost is inflation. In this sense, you can also say that there is a positive relationship between output and inflation, because output is negatively correlated with unemployment (firms need workers to produce more). The first thing you have to kept in mind is that the Phillips relation is only true for shocks in Aggregate Demand. For instances, when the U.S. suffered from stagflation on the 70s (inflation and low output - or inflation and higher unemployment) the evidence showed that not always the Phillips curve are right. In this case, the oil shocks affected suppliers costs and thus the Aggregate Supply. Given this, the Phillips Curve holds in the short-run for any shock on AD. In the long-run the production (unemployment) of an economy depends on its inputs abundance and their efficiency, independently of the nominal variables (like prices, inflation, etc.). So the Phillips curve is an horizontal line, the natural unemployment is independent of the inflation! Gustavo Almeida, Portugal, gdireitinho@gmail.com
How are the inflation and unemployment related in short run?
In the short run, there is a negative correlation between the changes in wages (normally growth rate) and the rate of unemployment. Changes in wages imply changes of inflation. This relationship is known as Phillips' Curve, in honour of William Phillips, who discovered it in 1958.Thus, the bigger the rate of inflation, the lower the unemployment. This appealing consequence made politicians think that they could get the level of employment they want just by creating more inflation.Eventually this was not true, and studies after these years showed that this correlation fell apart, and there were combinations of high unemployment and inflation.Why was that? The answer is expectations. If individuals know that governments (or central banks) will follow a weak monetary policy (increasing the circulation of money in the economy and therefore generating inflation) they will expect the rate of inflation to be high. Trade unions will endeavour to get rises in wages, and this will impede companies to hire more workers. Thus if the monetary authority increase inflation now, it would not get reduction of unemployment.
If inflation falls why would unemployment rise?
When economists look at inflation and unemployment in the short term, they see a rough inverse correlation between the two. When unemployment is high, inflation is low and when inflation is high, unemployment is low. This has presented a problem to regulators who want to limit both. This relationship between inflation and unemployment is the Phillips curve. The short term Phillips curve is a declining one. Fig 2.4.1-Short term Phillips curveThis is a rough estimation of a short-term Phillips curve. As you can see, inflation is inversely related to unemployment. The long-term Phillips curve, however, is different. Economists have noted that in the long run, there seems to be no correlation between inflation and unemployment.
Did president Reagan want to raise the inflation rate?
No
How does government intervene to lower inflation or unemployment?
The government acts on inflation through The Federal Reserve. The Federal Reserve acts on inflation by targeting interest rates through the reserve requirement. When interest rates are high, people want to keep money in their bank accounts, and inflation decreases. When interest rates are low, people are more willing to spend their money and inflation increases. Once, the Federal Reserve actually pushed the United States into a recession once to battle especially high inflation. Ever since then, it has been very important for the Federal Reserve to keep inflation in check. The government, as demonstrated during the latest recession, enacts many different stimulus packages to help the economy recover and help unemployment come down from extremely high percentages.
What is the relationship of frictional structural and cyclical unemployment to full-employment rate of unemployment or natural rate of unemloyment?
Economists recognize three major types of unemployment:frictional - the unemployment experienced between changing jobs or in the midst of training between jobs. It is also called search unemployment.structural - the unemployment due to the mismatch between the skills of the unemployed workers and the vacancies available (i.e., if one lacks the skills to get the job or if one doesn't want the job and chooses to stay unemployed because one is overqualified).cyclical - the unemployment due to variations in the business cycle. When the economy is rising, it decreases and when the economy declines, it increases due to inadequate effective aggregate demand.Full employment is the theoretical rate of unemployment that can be achieved if cyclical employment is eliminated (by increasing demand for products and workers). However, eventually the economy hits an inflation barrier - when decreasing unemployment further causes disproportionate increase in inflation (see Phillips curve).The natural rate of unemployment is the rate that exists when the labour market is in equilibrium and there is no pressure for nether increasing or decreasing rate of inflation.Basically, frictional and structural unemployment are always present and relatively constant while cyclical unemployment varies with the business cycle.
Any idea which are the most affected countries due to inflation?
You might want to check out Zimbabwe's inflation rate and check out what is happening in that country at the moment. latest inflation rate 2.3million% most places run at 4%
What measures the percentage of people who want a job but cannot find one?
The Unemployment rate.
What are the different kinds of inflation?
On the basis of rate of Inflation, there are different types of Inflation. They are:Creeping Inflation.Walking or Trotting Inflation.Running inflation.Hyper or Galloping Inflation.Open Inflation.Suppressed Inflation.On the basis of rate of Inflation, there are different types of Inflation. They are:Creeping Inflation.Walking or Trotting Inflation.Running inflation.Hyper or Galloping Inflation.Open Inflation.Suppressed Inflation.
Explain the short-run Philips curve and long-run Philips curve?
The Phillips Curve is the negative relationship between unemployment and inflation. If you want to have less unemployment the cost is inflation. In this sense, you can also say that there is a positive relationship between output and inflation, because output is negatively correlated with unemployment (firms need workers to produce more). The first thing you have to kept in mind is that the Phillips relation is only true for shocks in Aggregate Demand. For instances, when the U.S. suffered from stagflation on the 70s (inflation and low output - or inflation and higher unemployment) the evidence showed that not always the Phillips curve are right. In this case, the oil shocks affected suppliers costs and thus the Aggregate Supply. Given this, the Phillips Curve holds in the short-run for any shock on AD. In the long-run the production (unemployment) of an economy depends on its inputs abundance and their efficiency, independently of the nominal variables (like prices, inflation, etc.). So the Phillips curve is an horizontal line, the natural unemployment is independent of the inflation! Gustavo Almeida, Portugal, gdireitinho@gmail.com
If the reserve bank wants to increase the real interest rate it must increase the nominal rate by more than that of inflation True or False?
Do you want to know this question for the test? lol
What is relation between inflation and interest rate?
Interest rate is the rate that borrowers pay extra for using money from a lender. Inflation is a rise in price level for goods and services over a period of time. When the price level rices, each unit of currency buys fewer goods and services. As a general rule of thumb, loaners like inflation and lenders dislike inflation because inflation decreases the value of money. This causes lenders to increase the interest rate, so that they do not become poorer than when they started off lending out money. Inflation increases interest rate. When lenders loans out money, they want to make a profit. If there's inflation, the money that the lender loans out loses purchasing power, meaning that every dollar is now worth less than it was originally. The same dollar buys less goods and services than it did before inflation. Because the lender wants the borrower to cover the cost, the lender will increase interest rate so that he or she is guaranteed not to lose money.
What is the relevance of the Phillips curve to modern economies?
The Phillips curve plots inflation against unemployment and was first published in 1958. It was used in policy making to reduce unemployment by accepting a higher level of inflation. However, as inflation increases workers begin to factor the increase into their wage demands, e.g. if the workers know that inflation is running at 5% and want a 'real' wage increase of 5% they'll ask for 5%+5%=10% wage increase (if they only receive an increase of 5% the real value of their wages will stay the same and if they have no increase the real value will fall by 5%). Because all workers factor in inflation into their wage demands unemplyment returns to its original level while inflation remains high. This realisation was made after the economic woes of the 1970s and 80s where there was significant inflation and unemplyment in many countries - something that had been unpredicted. The relevance of the Phillips curve today serves as a warning that governments cannot trade unemployment for inflation. This is why Central Banks only target inflation and not unemloyment in their monetary policy decisions.
