ECON 201: Assignment on GDP, Inflation, and Unemployment: An Analysis

This economics assignment delves into the critical relationships between Gross Domestic Product (GDP), inflation, and unemployment, highlighting their interconnectedness and influence on each other. The analysis explores how GDP, as a key economic indicator, is affected by the business cycle and how changes in GDP can impact inflation and unemployment rates. The assignment emphasizes the importance of these three pillars of the economy, discussing how increased GDP can lead to reduced unemployment and increased inflation due to shifts in aggregate demand. It uses the Australian economy's rising property prices as a practical example and recommends prioritizing GDP growth to positively influence other economic indicators. The paper concludes that foreign investors prioritize GDP, reinforcing the importance of GDP over inflation and unemployment when making economic decisions.

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ECONOMICS ASSIGNMENT

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GDP, inflation and unemployment
Economic indicators are important to provide quantitative results regarding the performance
of a specific economy. Three of the most important economic indicators are the GDP,
inflation and unemployment rate (Khan et al. 2018). They are also called the three pillars of
the economy as well. Now, it is important to note that these three economic indicators are
interrelated to each other and influence each other as well. GDP is one of the economic
indicators that depend mainly on the position of the economy in the business cycle. In the
expansionary phase of the business cycle, the aggregate demand for the goods and the
services remains high that also drives up the GDP of the country as well. Now, as the GDP
increases, the income of the customers of the economy increases further. This increased
income is used by the customers to demand more goods and services from the market. Thus,
the aggregate demand curve shifts to the right side (Lewis et al. 2019). This shafted aggregate
demand along with the unchanged aggregate supply curve increases the price level of the
economy. This way the price of the household property increases with the increases in the
GDP.
Again, the increase in the GDP and inflation again reduce the unemployment rate in the
economy as well. As the GDP increases along with the inflation rate, aggregate demand for
the goods and the services increases and hence the economic activity expands. In this case,
the investment from the side of the companies also increases as a part of the expansion
policy. The companies require laborers for their expanded operation and hence the
unemployment rate reduces. For example, if the increase in the GDP increases the demand
for household in the economy, companies will appoint more labours for their future projects
as well. In the expansionary phase of the business cycle the unemployment rate increases
beyond the natural rate of the unemployment rate and further increases the GDP of the
country (Folawewo & Adeboje, 2017). The newly employed workers further increase the
demand for the goods and the services and hence the inflation increases further. Therefore the
three main economic indicators are intertwined and influence the performance of each other
as well.
Now if a policymaker had a choice to prioritize one of the indicators, the recommendations
will be to focus on the GDP. The reason behind this is that even in case of no change in the
position of the economy in the business cycle; an exogenous increase in the GDP of the
country can reduce the unemployment rate that can further increase the growth of the GDP of

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the country (Singh & Verma, 2016). One of the current issues of the Australian economy is
the rising property prices. This can be due to the increase in the GDP of the country.
Therefore the recommendation would be to focus on the GDP increase so that it has
repercussions in other economic indicators as well. Another rationale behind focusing on the
GDP, in this case, is that it will allow the economy to have a better reputation in the capital
market. The foreign investors are not likely to consider the inflation rate or unemployment
rate in the economy before they invest their capital into the economy. Therefore, GDP,
inflation and unemployment are three important economic indicators that are interrelated to
each other and in case of any choice GDP needs to be focused more than the other two
indicators.

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Reference
Folawewo, A. O., & Adeboje, O. M. (2017). Macroeconomic determinants of unemployment:
empirical evidence from economic community of West African states. African
Development Review, 29(2), 197-210.
Khan, I., Ahmad, A., Khan, M. T., & Ilyas, M. (2018). The Impact of GDP, Inflation,
Exchange Rate, Unemployment and Tax Rate on the Non Performing Loans of
Banks: Evidence From Pakistani Commercial Banks. Journal of Social Sciences &
Humanities (1994-7046), 26(1).
Lewis, B., Veronica, C. M., Francis, N., & Isaac, A. (2019). Effects of Gross Domestic
Product and Inflation Rate on Unemployment Rate in Ghana: Comparative Analysis
of Multiple Regression and Covariance Matrix Models. American Journal of Applied
Mathematics, 7(1), 5-12.
Singh, D., & Verma, N. (2016). Tradeoff between Inflation and Unemployment in the Short
Run: A Case of the Indian Economy. International Finance and Banking, 3(1), 77.