Promoting active learning

1
Unemployment and Inflation
2
Unemployment and Inflation

• Inflation

3
Inflation rates for selected countries(average
per annum)
4
Inflation rates for selected countries(average
per annum)
5
Inflation rates for selected countries(average
per annum)
6
Inflation rates in selected industrial countries
UK
7
Inflation rates in selected industrial countries
UK
8
Inflation rates in selected industrial countries
UK
EU 15
9
Inflation rates in selected industrial countries
UK
EU 15
10
Inflation rates in selected industrial countries
USA
UK
EU 15
11
Inflation rates in selected industrial countries
USA
UK
EU 15
12
Inflation rates in selected industrial countries
USA
UK
EU 15
Japan
13
Inflation rates in selected industrial countries
USA
UK
EU 15
Japan
14
Inflation rates in selected industrial countries
USA
UK
OECD
EU 15
Japan
15
Inflation rates in selected industrial countries
USA
UK
OECD
EU 15
Japan
16
INFLATION

• The costs of inflation
• redistribution
• uncertainty
• balance of payments
• resources used to cope with inflation

17
Demand-pull inflation
AS
Price level
P1
AD1
O
Q1
National output
18
Demand-pull inflation
AS
Price level
P1
AD2
AD1
O
Q1
National output
19
Demand-pull inflation
AS
Price level
P2
P1
AD2
AD1
O
Q1
National output
20
Cost-push inflation
AS1
Price level
P1
AD
O
Q1
National output
21
Cost-push inflation
AS2
AS1
Price level
P1
AD
O
Q1
National output
22
Cost-push inflation
AS2
AS1
Price level
P2
P1
AD
O
Q1
National output
23
The interaction of demand-pull and cost-push
inflation
AS1
Price level
P1
AD1
O
National output
24
The interaction of demand-pull and cost-push
inflation
AS2
AS1
Price level
P1
AD2
AD1
O
National output
25
The interaction of demand-pull and cost-push
inflation
AS3
AS2
AS1
Price level
P2
AD3
P1
AD2
AD1
O
National output
26
Unemployment and Inflation

• Relationship between Unemployment and Inflation

27
RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT

• Aggregate demand and inflation and unemployment
• effects of increases in aggregate demand
  (relative to potential output)
• how the objectives vary with the course of the
  business cycle
• The Phillips curve
• the original curve
• the apparent policy implications

28
The original Phillips curve
Wage inflation ()
Unemployment ()
29
A Laffer curve
Total tax revenue
0
100
Average tax rate ()
30
A Laffer curve
Total tax revenue
0
100
Average tax rate ()