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This paper is for Econ 203 (Ashford University). The paper should be 8 pages long (does not include title page and references). Details of the paper are attached. This needs to be completed by Sunday, December 16.
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final report
by Prof A
Submission date: 16-Dec-2018 09:00AM (UT C-0500)
Submission ID: 1057781213
File name: Unemployment_and_Inf lation_1.doc (275K)
Word count: 3126
Character count: 17748
final report
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Running head: UNEMPLOYMENT AND INFLATION
Unemployment and Inflation
Name
Institutional Affiliation
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UNEMPLOYMENT AND INFLATION
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The Short-Run and Long-Run Relationship between Unemployment and Inflation
Introduction
Inflation and unemployment are the two macroeconomic challenges that adversely affect
the economy. The two issues have for a long time remained the fundamental subjects of concern
for any government. Inflation refers to a continuous rising tendency in the universal measure of
prices for the whole market. It occurs when the supply of money in the market surpasses the
accessible products and is ascribed to a shortage in budget funding whereby the deficiency in the
budget can be capitalized through creating more money (Lipse & Scarth 2011). Unemployment
happens when people are assiduously looking for jobs but their efforts prove futile as they do not
get any job. There is not even a single state that wants to be faced with the catastrophes of high
unemployment rates and inflation since they are extremely detrimental to the economy and their
effects are long-lasting. Inflation destabilizes a country and takes away it competitive prowess.
The two factors, unemployment and inflation are viewed collaboratively since in the
event that one goal is achieved, there is a high likelihood of losing the other one, for instance in a
situation where the economic If economic sustainability is nourishing, it may be instrumental in
promoting low increased employment rates, yet the challenge of inflation may be inevitable.
Because of this, the government finds it demanding to curb the unemployment and inflation
problems jointly. This paper aims at evaluating the short-run and long-run correlation amidst
unemployment and inflation by reviewing the unemployment and inflation statistics of U.S in the
past twenty years using the Philips Curve. It concludes with recommendations of the policies,
methods or opinions for the contemporary U.S. unemployment and inflation (Forder, 2014).
The historical connection between unemployment and inflation
UNEMPLOYMENT AND INFLATION
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The connection betwixt lack of employment and inflation is well described by the Philips
curve which is an economic theory that states that there exists a fived and inverse
correspondence amidst the inflation-unemployment rate in an economy. A.W. Phillips in 1958
invented the Philips Curve and wrote his views as concerns the reverse interaction amidst salary
changes and joblessness. His hypothesis was proved verifiable for many industrialized nations.
Philip’s work was further researched and edited by Paul Samuelson and Robert Solow to mirror
the connection between inflation and unemployment in 1960 (Papadopoulos, 2014). Since
salaries form the biggest factors of costs, inflation (as opposed salary changes) could reflect an
inverse association with unemployment.
The Phillips curve theory edited by Paul Samuelson and Robert Solow was seemingly
steady and certain. Statistics from the 1960s depicted the connection amid unemployment and
inflation relatively efficient. The curve provided prospective effects of the economic policies
which could be utilized to attain aggregate employment at high-cost degree or to lessen inflation
at an expense of low employment. Nevertheless, an attempt by the government to use the Phillips
curve in controlling the lack of employment and inflation in the market proved the correlation
inapplicable and statistics thereafter followed the curve after adjustments were made. The curve
theorized that if there is a low unemployment rate, in turn, the number of qualified people that
will search for a job is less (Lundborg & Sacklén 2006). Organizations in response to low turnup would increase their salaries to lure the few skilled workers available. Phillips illustrated that
a specific rate of joblessness would result to a particular inflationary level.
The theory illustrated that policymakers were able to keep a reduced unemployment rate
for a long time, provided that they could endure high inflation rates. This ideology would later be
criticized monetarists under the leadership of Milton Friedman who complained that it was not
UNEMPLOYMENT AND INFLATION
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applicable in the long run. Their view was that in the long-haul, adjustments in prices would not
affect the e...