Inflation, Unemployment and Growth - Essay Example

Inflation, Unemployment and Growth Inflation A rise in the prices of products and services over time in an economyis inflation. The worst scenario brought on by inflation is that it discourages investments and savings. Shortage of goods is another problem brought on by hoarding. However, it encourages investment in non-monetary assets.2. The CPI measures, or estimates the rate of inflation. It is measured by calculating the price of selected goods purchased over time, against 100%. One advantage of using the CPI is the modification of measures it takes into consideration.

They modify their measures with current times and situations to best find the best result. One disadvantage is the distortion in weighted averages. It may produce wrongful information on inflation.3. The current inflation rate is at o.6%. The core rate of inflation is the annual rise in consumer expenditure. This rate was at 3.3%. The inflation rate for health care services was measured at 1.7%. This is with the gradual increase in the consumer price index of urban consumers.4. A fall in price levels of a commodity over time is termed as deflation.

One noteworthy thing brought on by deflation is a consumer’s purchasing power. More goods and services may be bought with little capital. It usually benefits people earning fixed income and consumers with less debt consumption. Japan’s experience with deflation started in the 1990’s. The creation of policies to end it did not assist. It did not create an increase in broad money which presented a problem. This led to an increase in deflation. There are more reasons to worry about deflation than inflation.

One is the failure to repay debts.5. Inflation is caused by the dependency of money-supply growth rate, and its relativity to the growth of the economy. To assist in reducing inflation, prices and wages need adjusting. This is to make other factors have a minimal effect on a trend line.6. Debasing the currency involves influencing money supply. This is by making it less or more expensive, which increases or decreases its production. 7. Internal method of valuing money involves the reverse value of prices.

Increases in price levels mean that, the amount of goods purchased by a single unit also decrease. The external method of valuing money involves calculating the amount of foreign currency, which is bought from a domestic money unit.8. The producer price index measures average changes in prices. These are prices expected by resident manufacturers for the total output produced. The use of the PPI is to measure the force being put on manufacturers by the costs of their raw resources.9. Monetary policies are in place to curb the effects of inflation.

Fixed exchange rates also provide an avenue for markets to prevent the rise of inflation in an economy.Unemployment10. The methodology used by the BLS to calculate unemployment is to divide the number of unemployed individuals by the amount of individuals in the working force. It is a reasonable methodology.11. The current rate of unemployment is at 7.8%. This rate varies across the demographic groups. In minority groups, the rate was nearly two times as much as for the other groups.12. Difference among the measures of unemployment, for example, U1 involves people who remain unemployed for 15 weeks, or more.

In U2, the percentage is for those who lost jobs. U3 bears the percentage of people without jobs but are looking for employment. U6 is the percentage of part-time workers who feel like working full-time.13. Frictional unemployment is the period of shift from one occupation to another. Structural unemployment is the lack of jobs for everyone because the labour market cannot provide. Cyclical unemployment involves lack of demand to provide jobs. Structural unemployment is the most worrisome. The policy in place to deal with frictional unemployment is to provide education and training.

Structural unemployment may be addressed by employing more people to produce the same output. By asking for deficit spending, cyclical unemployment is addressed. Deficit spending boosts demand and employment.14. The fiscal and monetary policies are perfect tools to deal with unemployment. They increase the demand for labour. This, in turn, reduces unemployment.15. An upsurge in the quantity of products produced in an economy over time is termed as economic growth. It is measured by the yearly one hundredth modification in actual gross domestic product.

Fiscal and monetary policies in place are tools that influence the rate of growth. They work toward the positive side of the economy by influencing the expenditure and investment of capital.Work CitedBaumol, William J., and Blinder, Alan S. Macroeconomics: Principles and Policy. New York: Free Press, 2011. Print.