Principles of Macroeconomics - Doc

   

Added on  2021-06-17

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Running Head: ECONOMICS ASSIGNMENT Economic AssignmentName of the StudentName of the UniversityCourse ID
Principles of Macroeconomics - Doc_1
ECONOMICS ASSIGNMENT 1Table of ContentsAnswer 1..........................................................................................................................................2Answer 2..........................................................................................................................................4Answer a......................................................................................................................................4Answer b......................................................................................................................................5Answer c......................................................................................................................................6Answer d......................................................................................................................................7Answer e....................................................................................................................................10References......................................................................................................................................11
Principles of Macroeconomics - Doc_2
ECONOMICS ASSIGNMENT 2Answer 1Among various indicators of macroeconomic performance of a nation unemployment andinflation are the two vital indicators. One indicates the movement of price level and hence,associated with cost of living. Other is an indicator of performance of labor market. Inflation isthe measure of percentage increase in the prevailing price level. Both demand and supply sidefactors are responsible in the movement of price level. Inflation resulted from demand sidepressure is known as demand-pull inflation while inflation from increased product cost or supplyside shortage is termed as cost-push inflation (Coibion & Gorodnichenko, 2015). In general,there can be observed an association between inflation and unemployment. Inflation andunemployment is often found to move in opposite direction. The trade-off betweenunemployment and inflation is theoretically modeled with Phillips curve.In case of Australia Reserve Bank of Australia aims to keep the inflation rate at a targetedlevel of 2%. The Australian government is also concerned about prevailing unemployment andtakes measures to maintain unemployment rate as low as possible. The figure below representstrend in inflation in unemployment rate of Australia for a considerable long period ranging from2001 to 2016.
Principles of Macroeconomics - Doc_3
ECONOMICS ASSIGNMENT 344.555.566.5711.522.533.544.55f(x) = − 0.15 x + 3.52R² = 0.01Inflation and Unemployment UnemploymentInflationFigure 1: Relation between inflation and unemployment(Source: abs.gov.au, 2018)Scatter plot is the most convenient way to graphically explore the relationship betweentwo variables. In the above figure inflation is measured on the vertical axis and the horizontalaxis measures unemployment. The points are though highly scattered between range of inflationand unemployment there is in general a negative trend relation between the two indicators. Thecoefficient of unemployment in the fitted trend equation is obtained as -0.15. This has theimplication that with 1 percent fall in unemployment, inflation will increase by 0.15 percent.Therefore, measures taken to reduce unemployment comes with the consequence of someincrease in the price level (Owyang, 2015).This trade-off between unemployment and inflation can be explained with the help ofPhillips curve. Economist A.W. Phillips first tested the relation between unemployment andinflation using the data of United Kingdom for a period extending from 1861 to 1957. The studyfound that inflation can possibly explained with movement of unemployment level and change in
Principles of Macroeconomics - Doc_4

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