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Economic Analysis - Assignment Sample

   

Added on  2021-06-18

7 Pages1393 Words105 Views
Page 1 of 7ECONOMIC ASSIGNMENT

Page 2 of 7Table of contentsQuestion 1..................................................................................................................................3Question 2..................................................................................................................................4Reference....................................................................................................................................8

Page 3 of 7Question 13.544.555.566.577.501234567Inflation and the unemployment rate Inflation Linear (Inflation )Figure 1: the inflation rates of Australia vis-à-vis the unemployment rate since 2001 to2016.(Source: Rao, 2016)According to the data obtained from the Australian Bureau of Statistics, the inflation rate andthe unemployment rate are related to each other. However, the strength of the relationship isnot much strong. This can be seen from the low correlation coefficient between the twovariables which has come to be as 0.43. In this case, the situation of the Australian economyviolates the Phillips curve which stated that the inflation rate of the economy and theunemployment rate need to be inversely related to each other. In this context, Michaillat &Saez (2015) stated that this theory does not hold true in case of a long run where the fullemployment level of the economy adjust itself with the changes in the inflation of theeconomy. The figure 1 shows that there exists an actual positive relationship between the two variables.That means with the increase in the inflation of the economy, the unemployment increases inthe long term. This can be due to the fact that the inflation is expected to increase the cost ofoperation of the companies and therefore the prices of the products which in turn may affectthe demand for the product (Auclert & Rognlie, 2018). This reduced demand for the producteventually harms the labor demand requirement and hence, in the long run, the increasinginflation increases the unemployment rate in the economy as well. Question 2The equation of the product market AD curve is,

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