The Link Between Inflation And Unemployment Economics Essay

The Link Between Inflation And Unemployment Economics Essay The two main goals of economic policymakers are low inflation and low unemployment, however often these goals conflict. For instance, if the policymakers decided to use monetary or fiscal policy to expand aggregate demand then this would move the economy along the short-run aggregate supply curve to a point of higher output and a higher price level. The higher output mean lower unemployment as firms would need more workers when they produce more. On the other hand a higher price level, given the previous years price level, means higher inflation. Therefore, when policymakers move the economy up along the short-run aggregate supply curve, they reduce the unemployment rate and raise the inflation rate. Similarly, when policymakers contract aggregate demand and move the economy down the short-run aggregate supply curve, unemployment rises and inflation falls. The trade off between unemployment and inflation is often referred as the Philips curve. The Philips curve is an inverse relationship between the rate of unemployment and the rate of inflation in an economy. In another word, it is a reflection of the short-run aggregate supply curve so as policymakers move the economy along the short-run aggregate supply curve, unemployment and inflation move in opposite direction. The Phillips curve is a useful way to express aggregate supply because unemployment and inflation are such important measures of economic performance. The Phillips curve in its modern form states that the inflation depends on three forces and they are; expected inflation, the deviation of unemployment from the natural rate also known as cyclical unemployment and supply shocks. These three forces can be express in the follow equation: Ï€ = Ï€ e ÃŽ ²(u-u n ) + ʆ¹ Inflation = Expected Inflation (ÃŽ ² x cyclical unemployment) + supply shock Where ÃŽ ² is a parameter measuring the response of inflation to cyclical unemployment. There is a minus sign before the cyclical unemployment as high unemployment tends to reduce inflation. The equation above basically summarises the link between unemployment and inflation. The diagram below is an example of a short-run trade off between unemployment and inflation. When unemployment is at its natural rate, inflation depends on expected inflation and the supply shock. The parameter ÃŽ ² determines the slope of the trade-off between unemployment and inflation. In the short-run, for a given level of expected inflation, policymakers can manipulate aggregate demand to choose a combination of inflation and unemployment on this curve which is called the short-run Phillips curve. In the short run, inflation and unemployment are negatively related. In the long-run, the Phillips curve is vertical. This is because when actual inflation equals expected inflation, there is no trade-off between inflation and unemployment. In long-term equilibrium the actual rate of inflation must remain equal to the expected rate. Unemployment, u Inflation, Ï€ Long-Run Phillips Curve Short-Run Phillips Curve Inflation, Ï€ Unemployment, u There are two main causes of rising and falling inflation; they are demand-pull inflation and cost-push inflation. Demand-pull inflation occurs when aggregate demand in an economy outpaces aggregate supply. This is when the inflation goes up as a result of real GDP rises and unemployment falls which move the economy along the Philips curve. The demand-pull inflation diagram below illustrates that according to Keynesian theory, firms will employ people and the more people are employed, the higher the aggregate demand will become. Greater aggregate demand will lead to firms employing more people in order to meet the higher output. This is when the unemployment falls and the price increases therefore AD0 shifts to AD1. Cost-push inflation occurs when the price of goods or services increases which doesnt have and close substitutes for example oil. The cost-pull inflation diagram below illustrates that according to Keynesian theory, many prices are sticky downwards, so instead of price fa lling there would be a supply shock causing a recession. This is when unemployment rises and GDP falls and therefore SRAS0 shifts to SRAS1. Cost-Pull inflation Demand-pull Inflation SRAS1 AD0 Price level AD1 E2 E0 AD0 SRAS0 Y* Y0 P2 P0 SRAS0 Price level E0 Real GDP E1 P1 P0 Real GDP Y0 Y* A good example of link between unemployment and inflation can be seen in the United States. The graph below shows the history of unemployment and inflation in the United States since 1961. The four decades of data illustrates some of the causes of rising or falling inflation. As we can see from the graph, during 1960s policymakers were able to reduce unemployment in the short -run, however this caused the inflation to rise high. This was achieved by cutting tax in 1964, together with expansionary monetary policy which expended the aggregate demand and pushed the unemployment rate below 5%. Moreover, due to government spending as a result of Vietnam War, this expansion of aggregate demand continued in the late 1960s. Consequently, unemployment fell lower and inflation rose higher than intended. In 1970s, policymakers started off with trying to lower the high inflation of 1960s. The government imposed temporary controls on wages and prices and the Federal Reserve engineered a recession through reducing monetary policy but the inflation rate only fell slightly. By 1972, unemployment was same as 1962 however the inflation rate was 3 percent higher. At the start of 1973 policymakers had to deal with the large supply shocks caused by the Organization of Petroleum Exporting Countries (OPEC). During mid-1970s, OPEC raised their oil price pushing the inflation rate up to 10 percent. With the supply shock and temporary tight monetary policy, led to recession in 1975. High unemployment during the recession reduced inflation rate however further OPEC price raise pushed inflation back up again in the late 1970s. During 1980s there was high inflation and high expectation of inflation. So the Federal Reserve was determined to aim monetary policy at reducing inflation. Consequently, in 1982 and 1983 the unemployment rate reached its highest level in 4 decades. Fall in oil price in 1986 has helped reduce the unemployment rate and lowered the inflation rate down from 10 percent to near 3 percent. By 1987, unemployment reached 6 percent which was close to most estimates of the natural rate. The unemployment rate continued to fall throughout the late 1980s and reached to 5.2 percent in 1986 which led to a new round of demand pull inflation. The 1990s began with a recession as a result of contractionary shocks to aggregate demand. However, unlike the recession in 1982, unemployment in 1990 recession wasnt far above the natural rate therefore the effect on inflation was small. By the end of 1990s, both unemployment and inflation reached their lowest levels in many years. This could be due to a combin ation of events which helped keep the inflation in check despite low unemployment. However in 2000, inflation rate started to rise up again. The example of United States macroeconomic history displays the many causes of inflation. The two sides of demand pulled inflation can be seen during the 1960s and 1980s. In the 1960s low unemployment pulled inflation up and in the 1980s high unemployment pulled the inflation down. During 1970s the rise in oil price showed the effects of cost push inflation. http://static.flatworldknowledge.com/sites/all/files/29936/fwk-rittenmacro-fig16_004.jpg

Comparing Heart of Darkness and A Separate Peace :: comparison compare contrast essays

Heart of Darkness and A Separate Peace There are many similarities between the books The Heart of Darkness and A Separate Peace. Most are between the two main characters' friends and how they deal with their situations and problems. The similarities between the two characters are their leadership skills, their expertise, and how their friends affect them. Mr. Kurtz and Finny both have incredible leadership skills. Finny is able to persuade Gene to do practically anything he wants him to do which in the end is his downfall since he convinces Gene to climb the tree with him and do a double jump. He also shows his leadership skills when he gathers a lot of the students and teaches them a new game that is fitted perfectly to his physical abilities. Mr. Kurtz showed these skills when he had the courage to go into the cillages of cannibals and convince them to give him their ivory or to tell them where they knew there was some. He also saved Marlow and his crew's lives when he commanded the natives to stop firing at their steamboat. "Kurtz got the tribe to follow him, did he?" I suggested. He fidgeted a little. "They adored him," he said." At the drop of his finger, he could have had the natives attack Marlow and his crew and kill them. While Mr. Kurtz and Finny are both alive, they are extremely good at what they do. Before his accident, Finney is the most athletic student at his school. After the accident, he tries to help Fene to become more athletic. His dream is for Finny to make the Olympics instead of him. Mr. Kurtz worked for a company that found ivory and then sold it to the public. "The he began again, assuring me Mr. Kurtz was the best agent he had, an exceptional man." Mr. Kurtz also brought back the most ivory then any other employee; "Sends in as much ivory as all the others put together." Both Mr. Kurtz and Finny had friends that had something to do with their deaths. In Finny's case, his friend Gene accidently jarred him off the tree branch that caused him to break his leg. When Finny got a brace on his leg, he tripped and broke it again, but when the doctor tried to mend it, bone marrow escaped and instantly killed him when it reached his heart.

A Heartbreaking Work of Staggering Genius Essay

A Heartbreaking Work of Staggering Genius is a great name for this novel because it is heartbreaking. One of the key features of this novel and one of my favorite parts is the way in which Eggers writes. He uses this stream consciousness writing style which basically means he writes what he thinks. This type of writing really connected with me because Eggers doesn’t just tell you what happened in his life but he makes you feel it. Much of what happens to Eggers is heart wrenching, made my stomach turn, and my heart pound. Eggers is the main character in this really horrific story that deals with the death of both his parents and his life afterward. I think that I liked this novel because it really deals with death in a very real and raw way. Often, authors attempt to sugar coat the idea of death and everyone who has ever experienced death knows that it is messy physically and emotionally. When the Egger brothers lose their parents so close together it really effected me. I had to wonder what would happen to me and my siblings if and when my parents die. Many people think that a child only becomes an adult after they lose their parents. I think about Dave and how long it really took him to become an adult. Dave has a really witty, and sarcastic narration. He writes and gives a whole lot of detail. I think when Dave talks about his relationship with his younger brother and more importantly his ability to parents it both humorous and also disturbing. Dave writes about things that were not only milestones in his life but also in mine. For example he talks all about the idea of exhibitionism and the idea of reality television. He writes about his experiences auditioning for MTV’s Real World. I think this is really important because I live in a world that really likes reality yet this reality television is real at all. I think that is what Dave’s writing really emphasizes – the idea of appearance versus reality. Dave really does a great job of catching the spirit of youth. The idea that young adults have all the freedom in the world to do and be whatever they want. At the same time we have so many societal pressures that can lead to misbehavior, addiction, and abandonment. This book is considered a memoir and not exactly an autobiography. He shows how the human memory works. It is not literal it is full of imperfections and non-facts, and full real emotion. Our memories, like Dave explains, are just as real as any real thing that has happened. Humans remember in exaggerated fashion, emotions become more intense or fade. In the end this is a story about one man’s memory of how he lost his parents and tried to find his life. This book is not beautifully written. It is full of grammatic errors, and run ons. But it is the perfect metaphor for the human mind, memory, and ultimately life is imperfect, heartbreaking, and genius.

John Steinbeck s Of Mice And Men - 1286 Words

The realistic fiction novella Of Mice And Men by John Steinbeck explains the journey of two migrant farm workers. Lennie and George are forced to overcome the Dust Bowl and The Great Depression around 1938. This makes jobs even harder to come by because everyone wanted one. Lennie and George were kicked out of Weed and they now work at a ranch in Soledad. At the new farm the friendship between Lennie and George becomes harder to maintain. The people on the farm are all different shapes, sizes, and are from different backgrounds, yet they all are very familiar with one concept: loneliness. The character most familiar with this concept is Crooks. In Of mice and men, John Steinbeck creates the isolated characterization of Crooks by describing how he looks, what he says, and his actions to emphasize the theme of loneliness and how it can make people harsh and sad that occurs throughout the book. Steinbeck describes Crooks as black and harsh. In this time period, being a different color than everyone else was not a benefit. The color of skin is a simple aspect enough. However, it separates him in ways beyond imaginable, making Crooks very lonely. Steinbeck made it seem so important that he was a different color, which sets the scene of the prejudice in the time of the dust bowl. The author first characterizes Crooks as black , by saying; Crooks, the Negro stable buck, had his bunk in the harness room; a little shed that leaned off the wall of the barn (33). The color of hisShow MoreRelatedJohn Steinbeck s Of Mice And Men1248 Words   |  5 PagesIn Steinbeck s novel Of Mice and Men, He uses imagery many times to create a realistic setting and plot. Steinbeck’s depiction of migrant workers and their daily complications during the depression are objectively precise due to his use of imagery with idioms, dreams, nature, loneliness and animal imagery. The main theme of th e book transpires to be loneliness and fate. While George and Lennie, the main characters have a synergetic relationship, fate steps in and does away with their dreams, whichRead MoreJohn Steinbeck s Of Mice And Men897 Words   |  4 Pagesthat we possess. Many people feel certain emotions based on events that have taken place in their lifetime or how they were raised throughout their childhood. In John Steinbeck’s Of Mice and Men, he portrays the feelings of isolation and loneliness in three different characters. George’s isolation is illustrated in Steinbeck’s, Of Mice and Men. George expresses many hard feelings towards Lennie at the opening of this story. â€Å"‘...you’re a lot of trouble,’ said George. ‘I could get along so easy and soRead MoreJohn Steinbeck s Of Mice And Men1243 Words   |  5 Pagesis what John Steinbeck achieves by portraying this through the characters in his novella Of Mice and Men. The main characters are affected by loneliness in their own different way throughout the novella. rf The loneliness is maintained by the challenges that the characters have to face, and they sustain those challenges of being inhumane towards each other. Crook, a figure in the story who experiences discrimination encounters the challenge of race, due to the book’s setting in the 1930’s duringRead MoreJohn Steinbeck s Of Mice And Men1080 Words   |  5 Pagesâ€Å"I want you to stay with me Lennie. Jesus Christ, somebody’d shoot you for a coyote if you was by yourself.† The novel Of Mice and Men by John Steinbeck shows the relationship between two migrant workers in the 1930s, George and Lennie, along with the other members on the new ranch that they began working on. Georgie and Lennie dreamed of following the American Dream and owning their own patch of land and the novel revolves around the dream and the obstacles that stand in their way. Lennie, a strongRead MoreJohn Steinbeck s Of Mice And Men2167 Words   |  9 Pagesjobs. In John Steinbeck’ s Of Mice and Men, George Milton and Lennie Small wander through California in search of a new job that would help them make enough money to live their American dream on â€Å"the fatta the lan’†(Steinbeck 14). George and Lennie’s hard work and determination is not enough for them to live their dream. Lennie has a mental disability that slows the two friends down from living their dream; they have to run from job to job because of Lennie’s unintentional actions. Steinbeck incorporatesRead MoreJohn Steinbeck s Of Mice And Men1360 Words   |  6 Pagesfeeling, thinking and acting in everyday life. In the story Of Mice and Men by John Steinbeck, a duo of farmers, George and Lennie, search for work wherever they can. Their dream of having a farm of their own is coming into reach, while George has to wield Lennie away from the temptation of Curley’s wife and the reality of what Lennie can do. John Steinbeck uses characterization to illustrate the nature of human existence. Steinbeck portrays George as a man who tries to help, and helps others soRead MoreJohn Steinbeck s Of Mice And Men1448 Words   |  6 Pages In the novella, Of Mice and Men, John Steinbeck discusses the idea of loneliness and how people who work at the ranch have no family and no future in lives. He indicates that all people at the ranch are lonely, but he specifically uses a few characters to highlight their state of being lonely and more miserable than the others. He emphasizes the loneliness of ranch life during the Great Depression, and shows how people are willing to try and find friendship in order to escape from the state ofRead MoreJohn Steinbeck s Of Mice And Men1205 Words   |  5 Pagesand the time period of John Steinbeck s novella, Of Mice and Men, exemplifies the idea that people from minorities are held back from achieving their version of the ‘American Dream’. This goes to prove not everyone will overcome the overbearing tidal waves of their hardship s, which makes the American Dream nothing more than a dream to them. Crooks, the black stable hand, faces discrimination due to his skin color as this unfortunately was common in the 1930’s. John Steinbeck uses Crooks’ situationRead MoreJohn Steinbeck s Of Mice And Men968 Words   |  4 PagesSolidifying the theme of John Steinbeck’s Of Mice and Men, the protagonist George expresses his significant loneliness despite a strong kinship with his friend Lennie, â€Å"’I ain’t got no people†¦ I seen the guys that go around the ranches alone. That ain’t no good’† (41). Published in 1937, amidst the horrific turmoil of the Great Depression, Steinbeck’s novella struck a sensitive chord with readers. Set in the heart of California’s Central Valley, this story follows two men, George and Lennie, as theyRead MoreJohn Steinbeck s Of Mice And Men1387 Words   |  6 Pageslanguage. Soledad is also town in which Of Mice Men takes place. The entire novel displays the idea of solitude. Alon g with the presence of loneliness in this story, John Steinbeck also ties in the idea of companionship through the everyday lives of individuals. The correlation of loneliness and companionship in the lives of these characters, along with the diversion of lifestyles consistently shows. Of all the many themes of the book, Of Mice and Men, the most important theme is the theme of loneliness