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Unemployment Unemployment and Inflation and Inflation

Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

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Page 1: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

UnemploymentUnemploymentand Inflationand Inflation

Page 2: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Unemployment and InflationUnemployment and Inflation

Nature of Unemployment

Nature of Unemployment

Page 3: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

The meaning of ‘unemployment’ defining the unemployment rate claimant unemployment

The meaning of ‘unemployment’ defining the unemployment rate claimant unemployment

NATURE OF UNEMPLOYMENTNATURE OF UNEMPLOYMENT

Page 4: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

UK claimant unemployment flows (millions)UK claimant unemployment flows (millions)

Page 5: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

UK claimant unemployment flows (millions)UK claimant unemployment flows (millions)

Page 6: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

UK claimant unemployment flows (millions)UK claimant unemployment flows (millions)

Page 7: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

UK claimant unemployment flows (millions)UK claimant unemployment flows (millions)

Page 8: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

The meaning of ‘unemployment’ defining the unemployment rate claimant unemployment

do claimant statistics give a true picture of unemployment?

The meaning of ‘unemployment’ defining the unemployment rate claimant unemployment

do claimant statistics give a true picture of unemployment?

NATURE OF UNEMPLOYMENTNATURE OF UNEMPLOYMENT

Page 9: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

The meaning of ‘unemployment’ defining the unemployment rate claimant unemployment

do claimant statistics give a true picture of unemployment?

standardised unemployment (ILO/OECD)

The meaning of ‘unemployment’ defining the unemployment rate claimant unemployment

do claimant statistics give a true picture of unemployment?

standardised unemployment (ILO/OECD)

NATURE OF UNEMPLOYMENTNATURE OF UNEMPLOYMENT

Page 10: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

The duration of unemployment inflows to and outflows from the stock of

unemployment

The duration of unemployment inflows to and outflows from the stock of

unemployment

NATURE OF UNEMPLOYMENTNATURE OF UNEMPLOYMENT

Page 11: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

•School/college leavers•People returning to the labour force (e.g. after raising children)

•People made redundant•People sacked•People temporarily laid off•People resigning

UNEMPLOYMENTUNEMPLOYMENT

INFLOWS(per period of time)

From jobs From outside the labour force

Flows into and out of unemploymentFlows into and out of unemployment

Page 12: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

•People made redundant•People sacked•People temporarily laid off•People resigning

UNEMPLOYMENTUNEMPLOYMENT

OUTFLOWS(per period of time)

To jobs To outside thelabour force

•People taking new jobs•People returning to old jobs who had been temporarily laid off

•People who have become disheartened and give up looking for a job•People who have reached retirement age•People who temporarily withdraw from labour force (e.g. to raise a family)•People who emigrate•People who die

INFLOWS(per period of time)

From jobs From outside the labour force•School/college leavers•People returning to the labour force (e.g. after raising children)

Flows into and out of unemploymentFlows into and out of unemployment

Page 13: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

The duration of unemployment

inflows to and outflows from the stock of unemployment

effects on the duration of unemployment

The duration of unemployment

inflows to and outflows from the stock of unemployment

effects on the duration of unemployment

NATURE OF UNEMPLOYMENTNATURE OF UNEMPLOYMENT

Page 14: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

The duration of unemployment

inflows to and outflows from the stock of unemployment

effects on the duration of unemployment

the phase of the business cycle

The duration of unemployment

inflows to and outflows from the stock of unemployment

effects on the duration of unemployment

the phase of the business cycle

NATURE OF UNEMPLOYMENTNATURE OF UNEMPLOYMENT

Page 15: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries

UK

0

2

4

6

8

10

12

14

1970 1975 1980 1985 1990 1995 2000

Une

mpl

oym

ent (

% o

f wor

kfor

ce)

Page 16: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

UK

0

2

4

6

8

10

12

14

1970 1975 1980 1985 1990 1995 2000

Une

mpl

oym

ent (

% o

f wor

kfor

ce)

Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries

Page 17: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

0

2

4

6

8

10

12

14

1970 1975 1980 1985 1990 1995 2000

Une

mpl

oym

ent (

% o

f wor

kfor

ce)

UK

France

Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries

Page 18: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

0

2

4

6

8

10

12

14

1970 1975 1980 1985 1990 1995 2000

Une

mpl

oym

ent (

% o

f wor

kfor

ce)

UK

France

Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries

Page 19: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

0

2

4

6

8

10

12

14

1970 1975 1980 1985 1990 1995 2000

Une

mpl

oym

ent (

% o

f wor

kfor

ce)

UK

France

Germany

Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries

Page 20: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

0

2

4

6

8

10

12

14

1970 1975 1980 1985 1990 1995 2000

Une

mpl

oym

ent (

% o

f wor

kfor

ce)

UK

France

Germany

Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries

Page 21: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

0

2

4

6

8

10

12

14

1970 1975 1980 1985 1990 1995 2000

Une

mpl

oym

ent (

% o

f wor

kfor

ce)

UK

France USA

Germany

Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries

Page 22: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

0

2

4

6

8

10

12

14

1970 1975 1980 1985 1990 1995 2000

Une

mpl

oym

ent (

% o

f wor

kfor

ce)

UK

France USA

Germany

Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries

Page 23: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

0

2

4

6

8

10

12

14

1970 1975 1980 1985 1990 1995 2000

Une

mpl

oym

ent (

% o

f wor

kfor

ce)

UK

France USA

Germany Japan

Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries

Page 24: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

0

2

4

6

8

10

12

14

1970 1975 1980 1985 1990 1995 2000

Une

mpl

oym

ent (

% o

f wor

kfor

ce)

UK

France USA

Germany Japan

Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries

Page 25: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

0

2

4

6

8

10

12

14

1970 1975 1980 1985 1990 1995 2000

Une

mpl

oym

ent (

% o

f wor

kfor

ce)

UK

France USA

Germany Japan

OECD

Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries

Page 26: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

0

2

4

6

8

10

12

14

1970 1975 1980 1985 1990 1995 2000

Une

mpl

oym

ent (

% o

f wor

kfor

ce)

UK

France USA

Germany Japan

OECD

Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries

Page 27: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

The composition of unemployment by geographical region

by sex

by age

by ethnic groups

The costs of unemployment to the unemployed themselves

to family and friends

to society at large

The composition of unemployment by geographical region

by sex

by age

by ethnic groups

The costs of unemployment to the unemployed themselves

to family and friends

to society at large

NATURE OF UNEMPLOYMENTNATURE OF UNEMPLOYMENT

Page 28: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Unemployment and InflationUnemployment and Inflation

Causes of Unemployment

Causes of Unemployment

Page 29: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Unemployment and the labour market aggregate demand and supply of labour

Unemployment and the labour market aggregate demand and supply of labour

CAUSES OF UNEMPLOYMENTCAUSES OF UNEMPLOYMENT

Page 30: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Disequilibrium unemploymentDisequilibrium unemployment

O

Ave

rag

e (r

ea

l) w

ag

e ra

te

No. of workers

ASL

ADL

Page 31: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Unemployment and the labour market

aggregate demand and supply of labour

equilibrium in the model

Unemployment and the labour market

aggregate demand and supply of labour

equilibrium in the model

CAUSES OF UNEMPLOYMENTCAUSES OF UNEMPLOYMENT

Page 32: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Qe

Disequilibrium unemploymentDisequilibrium unemployment

O

Ave

rag

e (r

ea

l) w

ag

e ra

te

No. of workers

ASL

ADL

We

Page 33: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Unemployment and the labour market

aggregate demand and supply of labour

equilibrium in the model

disequilibrium unemployment

Unemployment and the labour market

aggregate demand and supply of labour

equilibrium in the model

disequilibrium unemployment

CAUSES OF UNEMPLOYMENTCAUSES OF UNEMPLOYMENT

Page 34: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

O

Ave

rag

e (r

ea

l) w

ag

e ra

te

No. of workers

ASL

ADL

We

W2

Disequilibrium unemploymentDisequilibrium unemployment

Q2 Q1

B A

Page 35: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Unemployment and the labour market

aggregate demand and supply of labour

equilibrium in the model

disequilibrium unemployment

equilibrium unemployment

Unemployment and the labour market

aggregate demand and supply of labour

equilibrium in the model

disequilibrium unemployment

equilibrium unemployment

CAUSES OF UNEMPLOYMENTCAUSES OF UNEMPLOYMENT

Page 36: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Equilibrium unemploymentEquilibrium unemployment

O

Ave

rag

e (r

ea

l) w

ag

e ra

te

No. of workers

ADL

We

ASL

e

Qe

Page 37: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Q2QeO

Ave

rag

e (r

ea

l) w

ag

e ra

te

No. of workers

ASL

ADL

We

N

e d

Equilibrium unemploymentEquilibrium unemployment

Page 38: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Equilibrium and disequilibrium unemploymentEquilibrium and disequilibrium unemployment

O

Ave

rag

e (r

ea

l) w

ag

e ra

te

No. of workers

ADL

We

e

Qe

ASL

Page 39: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

O

Ave

rag

e (r

ea

l) w

ag

e ra

te

No. of workers

ASL

ADL

We

W2

b a

e

Disequilibriumunemployment

Equilibrium and disequilibrium unemploymentEquilibrium and disequilibrium unemployment

Page 40: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

O

Ave

rag

e (r

ea

l) w

ag

e ra

te

No. of workers

ASL

ADL

We

W2

b a

e

N

c

Equilibriumunemployment

Disequilibriumunemployment

Equilibrium and disequilibrium unemploymentEquilibrium and disequilibrium unemployment

Page 41: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Disequilibrium unemployment

real-wage (classical) unemployment

Disequilibrium unemployment

real-wage (classical) unemployment

CAUSES OF UNEMPLOYMENTCAUSES OF UNEMPLOYMENT

Page 42: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

O

Ave

rag

e (r

ea

l) w

ag

e ra

te

No. of workers

ASL

ADL

We

W1

QeQ2 Q1

ADL 2

b’

Real-wage unemploymentReal-wage unemployment

b a

Page 43: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Disequilibrium unemployment

real-wage (classical) unemployment

demand-deficient (cyclical) unemployment

Disequilibrium unemployment

real-wage (classical) unemployment

demand-deficient (cyclical) unemployment

CAUSES OF UNEMPLOYMENTCAUSES OF UNEMPLOYMENT

Page 44: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

ADL 2

O

Ave

rag

e (r

ea

l) w

ag

e ra

te

No. of workers

ADL 1

W1

Q1Q2

W2

ASL

Demand-deficient unemploymentDemand-deficient unemployment

Page 45: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Disequilibrium unemployment

real-wage (classical) unemployment

demand-deficient (cyclical) unemployment

unemployment arising from a growth in the labour supply

Disequilibrium unemployment

real-wage (classical) unemployment

demand-deficient (cyclical) unemployment

unemployment arising from a growth in the labour supply

CAUSES OF UNEMPLOYMENTCAUSES OF UNEMPLOYMENT

Page 46: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Equilibrium unemployment

frictional (search) unemployment

Equilibrium unemployment

frictional (search) unemployment

CAUSES OF UNEMPLOYMENTCAUSES OF UNEMPLOYMENT

Page 47: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

O

Wag

e ra

te

Period of search

t l

Wage rate offered (Wo)

Wage rate acceptable to worker (Wa)

Average duration of unemploymentAverage duration of unemployment

Page 48: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Equilibrium unemployment

frictional (search) unemployment

structural unemployment

Equilibrium unemployment

frictional (search) unemployment

structural unemployment

CAUSES OF UNEMPLOYMENTCAUSES OF UNEMPLOYMENT

Page 49: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Equilibrium unemployment

frictional (search) unemployment

structural unemployment

changing pattern of demand

Equilibrium unemployment

frictional (search) unemployment

structural unemployment

changing pattern of demand

CAUSES OF UNEMPLOYMENTCAUSES OF UNEMPLOYMENT

Page 50: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Equilibrium unemployment

frictional (search) unemployment

structural unemployment

changing pattern of demand

regional unemployment

Equilibrium unemployment

frictional (search) unemployment

structural unemployment

changing pattern of demand

regional unemployment

CAUSES OF UNEMPLOYMENTCAUSES OF UNEMPLOYMENT

Page 51: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Equilibrium unemployment

frictional (search) unemployment

structural unemployment

changing pattern of demand

regional unemployment

technological unemployment

Equilibrium unemployment

frictional (search) unemployment

structural unemployment

changing pattern of demand

regional unemployment

technological unemployment

CAUSES OF UNEMPLOYMENTCAUSES OF UNEMPLOYMENT

Page 52: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Equilibrium unemployment

frictional (search) unemployment

structural unemployment

changing pattern of demand

regional unemployment

technological unemployment

seasonal unemployment

Equilibrium unemployment

frictional (search) unemployment

structural unemployment

changing pattern of demand

regional unemployment

technological unemployment

seasonal unemployment

CAUSES OF UNEMPLOYMENTCAUSES OF UNEMPLOYMENT

Page 53: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Unemployment and InflationUnemployment and Inflation

Aggregate Demand, Aggregate Supply and

the Price Level

Aggregate Demand, Aggregate Supply and

the Price Level

Page 54: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

The aggregate demand curve The aggregate demand curve

AD, AS and the PRICE LEVELAD, AS and the PRICE LEVEL

Page 55: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

O

Pri

ce le

vel

National output

AD

Aggregate demand and aggregate supplyAggregate demand and aggregate supply

Why the AD curve slopes downwards

foreign trade effect

real balance effect

interest rate effect

The shape of the AD curve

Shifts in the AD curve

Page 56: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

The aggregate demand curve

The aggregate supply curve

The aggregate demand curve

The aggregate supply curve

AD, AS and the PRICE LEVELAD, AS and the PRICE LEVEL

Page 57: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

O

Pri

ce le

vel

National output

AS

short-run and long-run AS curves

the shape of the AS curve

shift in the AS curve

Aggregate demand and aggregate supplyAggregate demand and aggregate supply

Page 58: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

The aggregate demand curve

The aggregate supply curve

Equilibrium

The aggregate demand curve

The aggregate supply curve

Equilibrium

AD, AS and the PRICE LEVELAD, AS and the PRICE LEVEL

Page 59: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

O

Pri

ce le

vel

National output

AS

AD

Pe

P2

ab

Aggregate demand and aggregate supplyAggregate demand and aggregate supply

Page 60: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

The aggregate demand curve

The aggregate supply curve

Equilibrium

shifts in the AD curve

The aggregate demand curve

The aggregate supply curve

Equilibrium

shifts in the AD curve

AD, AS and the PRICE LEVELAD, AS and the PRICE LEVEL

Page 61: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

The aggregate demand curve

The aggregate supply curve

Equilibrium

shifts in the AD curve

shifts in the AS curve

The aggregate demand curve

The aggregate supply curve

Equilibrium

shifts in the AD curve

shifts in the AS curve

AD, AS and the PRICE LEVELAD, AS and the PRICE LEVEL

Page 62: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Unemployment and InflationUnemployment and Inflation

InflationInflation

Page 63: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Defining inflation

International experience of inflation

Defining inflation

International experience of inflation

INFLATIONINFLATION

Page 64: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Inflation rates for selected countries(average % per annum)

Inflation rates for selected countries(average % per annum)

Page 65: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Inflation rates for selected countries(average % per annum)

Inflation rates for selected countries(average % per annum)

Page 66: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Inflation rates for selected countries(average % per annum)

Inflation rates for selected countries(average % per annum)

Page 67: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

UK

Inflation rates in selected industrial countriesInflation rates in selected industrial countries

-2

0

2

4

6

8

10

12

14

16

18

20

22

24

26

1965 1970 1975 1980 1985 1990 1995 2000

Infla

tion

(% in

crea

se in

reta

il pr

ices

)

Page 68: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

UK

-2

0

2

4

6

8

10

12

14

16

18

20

22

24

26

1965 1970 1975 1980 1985 1990 1995 2000

Infla

tion

(% in

crea

se in

reta

il pr

ices

)Inflation rates in selected industrial countriesInflation rates in selected industrial countries

Page 69: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

-2

0

2

4

6

8

10

12

14

16

18

20

22

24

26

1965 1970 1975 1980 1985 1990 1995 2000

Infla

tion

(% in

crea

se in

reta

il pr

ices

)

UK

EU 15

Inflation rates in selected industrial countriesInflation rates in selected industrial countries

Page 70: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

-2

0

2

4

6

8

10

12

14

16

18

20

22

24

26

1965 1970 1975 1980 1985 1990 1995 2000

Infla

tion

(% in

crea

se in

reta

il pr

ices

)

UK

EU 15

Inflation rates in selected industrial countriesInflation rates in selected industrial countries

Page 71: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

-2

0

2

4

6

8

10

12

14

16

18

20

22

24

26

1965 1970 1975 1980 1985 1990 1995 2000

Infla

tion

(% in

crea

se in

reta

il pr

ices

)

UK

EU 15

USA

Inflation rates in selected industrial countriesInflation rates in selected industrial countries

Page 72: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

-2

0

2

4

6

8

10

12

14

16

18

20

22

24

26

1965 1970 1975 1980 1985 1990 1995 2000

Infla

tion

(% in

crea

se in

reta

il pr

ices

)

UK

EU 15

USA

Inflation rates in selected industrial countriesInflation rates in selected industrial countries

Page 73: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

-2

0

2

4

6

8

10

12

14

16

18

20

22

24

26

1965 1970 1975 1980 1985 1990 1995 2000

Infla

tion

(% in

crea

se in

reta

il pr

ices

)

UK

EU 15 Japan

USA

Inflation rates in selected industrial countriesInflation rates in selected industrial countries

Page 74: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

-2

0

2

4

6

8

10

12

14

16

18

20

22

24

26

1965 1970 1975 1980 1985 1990 1995 2000

Infla

tion

(% in

crea

se in

reta

il pr

ices

)

UK

EU 15 Japan

USA

Inflation rates in selected industrial countriesInflation rates in selected industrial countries

Page 75: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

UK

EU 15 Japan

USAOECD

-2

0

2

4

6

8

10

12

14

16

18

20

22

24

26

1965 1970 1975 1980 1985 1990 1995 2000

Infla

tion

(% in

crea

se in

reta

il pr

ices

)Inflation rates in selected industrial countriesInflation rates in selected industrial countries

Page 76: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

UK

EU 15 Japan

USAOECD

-2

0

2

4

6

8

10

12

14

16

18

20

22

24

26

1965 1970 1975 1980 1985 1990 1995 2000

Infla

tion

(% in

crea

se in

reta

il pr

ices

)Inflation rates in selected industrial countriesInflation rates in selected industrial countries

Page 77: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

The costs of inflation

redistribution

uncertainty

balance of payments

resources used to cope with inflation

The costs of inflation

redistribution

uncertainty

balance of payments

resources used to cope with inflation

INFLATIONINFLATION

Page 78: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Types of inflation demand pull

Types of inflation demand pull

INFLATIONINFLATION

Page 79: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Demand-pull inflationDemand-pull inflation

O

Pri

ce le

vel

National output

AS

AD1

P1

Q1

Page 80: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

O

Pri

ce le

vel

National output

AS

AD1

P1

Q1

AD2

Demand-pull inflationDemand-pull inflation

Page 81: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

O

Pri

ce le

vel

National output

AS

AD1

P1

Q1

AD2

P2

Q2

Demand-pull inflationDemand-pull inflation

Page 82: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Types of inflation demand pull cost push

Types of inflation demand pull cost push

INFLATIONINFLATION

Page 83: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Cost-push inflationCost-push inflation

O

Pri

ce le

vel

National output

AS1

AD

P1

Q1

Page 84: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

O

Pri

ce le

vel

National output

AS1

AD

P1

Q1

AS2

Cost-push inflationCost-push inflation

Page 85: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

O

Pri

ce le

vel

National output

AS1

AD

P1

Q1

AS2

P2

Q2

Cost-push inflationCost-push inflation

Page 86: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Types of inflation demand pull cost push interaction of demand-pull and cost-push

inflation

Types of inflation demand pull cost push interaction of demand-pull and cost-push

inflation

INFLATIONINFLATION

Page 87: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

The interaction of demand-pull and cost-push inflationThe interaction of demand-pull and cost-push inflation

O

Pri

ce le

vel

National output

AS1

AD1

P1

Page 88: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

O

Pri

ce le

vel

National output

AS1

AD1

P1

AS2

AD2

P2

The interaction of demand-pull and cost-push inflationThe interaction of demand-pull and cost-push inflation

Page 89: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

O

Pri

ce le

vel

National output

AS1

AD1

P1

AD2

P2

AS3

AD3

P3

The interaction of demand-pull and cost-push inflationThe interaction of demand-pull and cost-push inflation

AS2

Page 90: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Types of inflation demand pull cost push interaction of demand-pull and cost-push

inflation structural (demand shift)

Types of inflation demand pull cost push interaction of demand-pull and cost-push

inflation structural (demand shift)

INFLATIONINFLATION

Page 91: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Types of inflation demand pull cost push interaction of demand-pull and cost-push

inflation structural (demand shift) expectations and inflation

Types of inflation demand pull cost push interaction of demand-pull and cost-push

inflation structural (demand shift) expectations and inflation

INFLATIONINFLATION

Page 92: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Types of inflation demand pull cost push interaction of demand-pull and cost-push

inflation structural (demand shift) expectations and inflation

Policies to tackle inflation

Types of inflation demand pull cost push interaction of demand-pull and cost-push

inflation structural (demand shift) expectations and inflation

Policies to tackle inflation

INFLATIONINFLATION

Page 93: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Types of inflation demand pull cost push interaction of demand-pull and cost-push

inflation structural (demand shift) expectations and inflation

Policies to tackle inflation demand-side policies

Types of inflation demand pull cost push interaction of demand-pull and cost-push

inflation structural (demand shift) expectations and inflation

Policies to tackle inflation demand-side policies

INFLATIONINFLATION

Page 94: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Types of inflation demand pull cost push interaction of demand-pull and cost-push

inflation structural (demand shift) expectations and inflation

Policies to tackle inflation demand-side policies supply-side policies

Types of inflation demand pull cost push interaction of demand-pull and cost-push

inflation structural (demand shift) expectations and inflation

Policies to tackle inflation demand-side policies supply-side policies

INFLATIONINFLATION

Page 95: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Unemployment and InflationUnemployment and Inflation

Relationship between Unemployment and

Inflation

Relationship between Unemployment and

Inflation

Page 96: Unemployment and Inflation. Unemployment and Inflation Nature of 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

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

RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT

RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT

Page 97: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

0

1

2

3

4

5

6

7

8

9

0 1 2 3 4 5 6

The original Phillips curveThe original Phillips curve

Unemployment (%)

Wa

ge in

flatio

n (

%)

Page 98: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

The 'Phillips curve' in recent times

the breakdown of the Phillips curve and the problem of stagflation in the 1970s

The 'Phillips curve' in recent times

the breakdown of the Phillips curve and the problem of stagflation in the 1970s

RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT

RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT

Page 99: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Inflation (%)

Unemployment (%)

The breakdown of the Phillips curve?The breakdown of the Phillips curve?

6763

6265

6664

60

61

0

2

4

6

8

10

12

14

16

18

20

22

24

26

0 1 2 3 4 5 6 7 8 9 10 11 12 13

Page 100: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

Inflation (%)

Unemployment (%)

The breakdown of the Phillips curve?The breakdown of the Phillips curve?

6763

6265

6664

60

61

0

2

4

6

8

10

12

14

16

18

20

22

24

26

0 1 2 3 4 5 6 7 8 9 10 11 12 13

Original Phillips curve

Page 101: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

74

7173

7072

Inflation (%)

Unemployment (%)

The breakdown of the Phillips curve?The breakdown of the Phillips curve?

6968

6763

6265

6664

60

61

0

2

4

6

8

10

12

14

16

18

20

22

24

26

0 1 2 3 4 5 6 7 8 9 10 11 12 13

Page 102: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

75

74

76

77

79

7173

7072

78

Inflation (%)

Unemployment (%)

The breakdown of the Phillips curve?The breakdown of the Phillips curve?

6968

6763

6265

6664

60

61

0

2

4

6

8

10

12

14

16

18

20

22

24

26

0 1 2 3 4 5 6 7 8 9 10 11 12 13

Page 103: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

The 'Phillips curve' in recent times

the breakdown of the Phillips curve and the problem of stagflation in the 1970s

experience of the 1980s

The 'Phillips curve' in recent times

the breakdown of the Phillips curve and the problem of stagflation in the 1970s

experience of the 1980s

RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT

RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT

Page 104: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

0

2

4

6

8

10

12

14

16

18

20

22

24

26

0 1 2 3 4 5 6 7 8 9 10 11 12 13

75

74

8076

77

79

7173

7072

78 82

8384

85

81

Inflation (%)

Unemployment (%)

The breakdown of the Phillips curve?The breakdown of the Phillips curve?

6968

6763

6265

6664

60

61

Page 105: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

The 'Phillips curve' in recent times

the breakdown of the Phillips curve and the problem of stagflation in the 1970s

experience of the 1980s

experience of recent years

The 'Phillips curve' in recent times

the breakdown of the Phillips curve and the problem of stagflation in the 1970s

experience of the 1980s

experience of recent years

RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT

RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT

Page 106: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

75

74

8076

77

79

7173

7072

78

90

89

9188

95

82

8384

85

86

93

8792

94

81

Inflation (%)

Unemployment (%)

The breakdown of the Phillips curve?The breakdown of the Phillips curve?

6968

6763

6265

6664

60

61

0

2

4

6

8

10

12

14

16

18

20

22

24

26

0 1 2 3 4 5 6 7 8 9 10 11 12 13

Page 107: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

The 'Phillips curve' in recent times

the breakdown of the Phillips curve and the problem of stagflation in the 1970s

experience of the 1980s

experience of recent years

a horizontal Phillips curve?

The 'Phillips curve' in recent times

the breakdown of the Phillips curve and the problem of stagflation in the 1970s

experience of the 1980s

experience of recent years

a horizontal Phillips curve?

RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT

RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT

Page 108: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

0

2

4

6

8

10

12

14

16

18

20

22

24

26

0 1 2 3 4 5 6 7 8 9 10 11 12 13

75

74

8076

77

79

7173

7072

78

90

89

9796

9188

95

82

8384

85

86

93

8792

94

81

Inflation (%)

Unemployment (%)

The breakdown of the Phillips curve?The breakdown of the Phillips curve?

6968

6763

6265

6664

60

6199

9800

0102

Page 109: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

The 'Phillips curve' in recent times

the breakdown of the Phillips curve and the problem of stagflation in the 1970s

experience of the 1980s

experience of recent years

a horizontal Phillips curve?

Output gaps

The 'Phillips curve' in recent times

the breakdown of the Phillips curve and the problem of stagflation in the 1970s

experience of the 1980s

experience of recent years

a horizontal Phillips curve?

Output gaps

RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT

RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT

Page 110: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

1980 1985 1990 1995 2000Out

put g

ap (

actu

al o

utpu

t min

us s

usta

inab

le o

utpu

t as

a %

of s

usta

inab

le o

utpu

t)Output gaps in selected countries: 1980-2003Output gaps in selected countries: 1980-2003

Page 111: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

1980 1985 1990 1995 2000Out

put g

ap (

actu

al o

utpu

t min

us s

usta

inab

le o

utpu

t as

a %

of s

usta

inab

le o

utpu

t)Output gaps in selected countries: 1980-2003Output gaps in selected countries: 1980-2003

UK

Page 112: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

1980 1985 1990 1995 2000Out

put g

ap (

actu

al o

utpu

t min

us s

usta

inab

le o

utpu

t as

a %

of s

usta

inab

le o

utpu

t)Output gaps in selected countries: 1980-2003Output gaps in selected countries: 1980-2003

UK

USA

Page 113: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

1980 1985 1990 1995 2000Out

put g

ap (

actu

al o

utpu

t min

us s

usta

inab

le o

utpu

t as

a %

of s

usta

inab

le o

utpu

t)Output gaps in selected countries: 1980-2003Output gaps in selected countries: 1980-2003

UK

USA

Germany

Page 114: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

1980 1985 1990 1995 2000Out

put g

ap (

actu

al o

utpu

t min

us s

usta

inab

le o

utpu

t as

a %

of s

usta

inab

le o

utpu

t)Output gaps in selected countries: 1980-2003Output gaps in selected countries: 1980-2003

UK

USA

Germany

Japan

Page 115: Unemployment and Inflation. Unemployment and Inflation Nature of Unemployment

The 'Phillips curve' in recent times

the breakdown of the Phillips curve and the problem of stagflation in the 1970s

experience of the 1980s

experience of recent years

a horizontal Phillips curve?

Output gaps

Complexity of the relationship between inflation and unemployment

The 'Phillips curve' in recent times

the breakdown of the Phillips curve and the problem of stagflation in the 1970s

experience of the 1980s

experience of recent years

a horizontal Phillips curve?

Output gaps

Complexity of the relationship between inflation and unemployment

RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT

RELATIONSHIP BETWEENINFLATION AND UNEMPLOYMENT