Inflation and Unemployment

What is Inflation?

Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly.

What are some of the factors that contribute to a rise in inflation?

Economists distinguish between two types of inflation: Demand-Pull Inflation and Cost-Push Inflation. Both types of inflation cause an increase in the overall price level within an economy.

1. Rising wages

2. Import prices

3. Raw material prices

4.    Profit push inflation

5.   Declining productivity

6. Higher taxes

7. Rising house prices

8. Printing more money

further read up:

http://www.frbsf.org/education/publications/doctor-econ/2002/october/inflation-factors-rise/

http://www.frbsf.org/economic-research/publications/economic-letter/1996/march/issues-inflation-outlook/

 

 

Unemployment

Unemployment is a phenomenon that occurs when a person who is actively searching for employment is unable to find work. Unemployment is often used as a measure of the health of the economy. The most frequently measure of unemployment is the unemployment rate, which is the number of unemployed people divided by the number of people in the labor force.

Frictional Unemployment

Frictional unemployment arises when a person is in-between jobs. After a person leaves a company, it naturally takes time to find another job, making this type of unemployment short-lived. It is also the least problematic from an economic standpoint. Arizona, for example, has faced rising frictional unemployment in May of 2016, due to the fact that unemployment has been historically low for the state. Arizona citizens feel confident leaving their jobs with no safety net in search of better employment.

Cyclical Unemployment

Cyclical unemployment comes around due to the business cycle itself. Cyclical unemployment rises during recessionary periods and declines during periods of economic growth. For example, the number of weekly jobless claims in the United States has slowed in the month of June, as oil prices begin to rise and the economy starts to stabilize, adding jobs to the market.

Structural Unemployment

Structural unemployment comes about through technological advances, when people lose their jobs because their skills are outdated. Illinois, for example, after seeing increased unemployment rates in May of 2016, seeks to implement “structural reforms” that will give people new skills and therefore more job opportunities.

What is ‘Unemployment Rate’

The unemployment rate is the share of the labor force that is jobless, expressed as a percentage. It is a lagging indicator, meaning that it generally rises or falls in the wake of changing economic conditions, rather than anticipating them. When the economy is in poor shape and jobs are scarce, the unemployment rate can be expected to rise. When the economy is growing at a healthy rate and jobs are relatively plentiful, it can be expected to fall.

Advertisements