Economic Indicators A look at Inflation and Unemployment as Economic Indicators

LEARNING OBJECTIVES 1) Understand the meaning of inflation and unemployment rate 2) To demonstrate how they are measured 3) To calculate each 4) Explain the relationship between inflation and unemployment (Phillips curve)

ECONOMIC INDICATORS REVIEW WHAT? are economic statistics WHEN? released from time to time WHO? by government agencies and private organizations. These indicators measure economic performance of a particular country or region over time

WHO USES THEM? Economists Government Business Investors Labour Private citizens Gives important information for decision making

KEY ECONOMIC INDICATORS GDP GNP NNP CPI (inflation) Unemployment HDI Trade position

INFLATION The rate at which the general level of prices for goods and services is rising, and, purchasing power is falling

CPI CPI can be used to calculate the inflation rate CPI measures: 1)price changes 2)cost of living changes.

What does this mean? It tells us how much cost of living has risen due to price changes What is the relationship between cost of living and price changes?

FORMULAE CPI = Current year Price x100 Base year price INFLATION = CPI current year – CPI previous year X 100% CPI previous year

TASK! … let’s look at some examples !!!

UNEMPLOYMENT RATE Definition 'Unemployment Rate' The percentage of the total labor force that is unemployed but actively seeking employment and willing to work.

WHAT UNEMPLOYMENT INDICATES Unemployment does not include people who DO NOT WANT to work but rather people who are willing but unable to find work.

Measuring Unemployment How do we measure unemployment?

Unemployment Rate FORMULA : number of workers unemployed X100 labour force The unemployment rate measures the number of people actively looking for a job as a percentage of the labour force.

TASK! Complete the task on the worksheet.

WHAT UNEMPLOYMENT INDICATES It acts a measure for: Economic growth Economic stability Economic efficiency Economic equity

QUESTION What is the relationship between unemployment and inflation ???

PHILLIPS CURVE … states that inflation and unemployment have a stable and inverse (OPPOSITE) relationship. According to the Phillips curve, the lower an economy's rate of unemployment, the more rapidly wages paid to labor increase in that economy.

Is this good or bad? Phillips posits that low levels of unemployment lead to higher prices. unemployment whhhhhh Y ?

DEMAND PULL INFLATION LOW Unemployment Increased Wages High demand for goods High Prices

WHY IT MATTERS! The inverse nature of the Phillips curve shows that maintaining a low level in either one leads to a likely increase in the other. For this reason, monetary strategists and policy-makers need to strike an effective balance between inflation and unemployment.

What about the long run? What does this indicate? Research !!!!

YOU GOT IT ?? … !!!!!