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Argentina Project - Essay Example

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Argentina’s GDP & inflation: The GDP of a country is a measurement of the worth of the economy. It is measured by the value of transaction in goods and services at the market price in the given period. Gross Domestic Product is given by the equation Y + T = C (Y –T) + I (r) + G + (X – M) Where, Y = National Income T = Tax C (Y-T) = Consumption which is a function of disposable income (Y – T)…
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Download file to see previous pages GDP of Argentina (2005 - 2010) Year GDP per capita (constant 2000 US$) 2005 8097.418686 2006 8097.418686 2007 8699.009376 2008 9359.588686 2009 9893.811398 2010 9880.474096 Source: World Databank, 2011 World Databank 2011 The above data collected from the World Databank gives us the GDP of Argentina from 2005 to 2010. The increase in the GDP shows that the economy is expanding. However we must also see the price level and the inflation of the country. Some of the index used to measure the price levels are GDP deflators and the Consumer Price Index. The following figure illustrates the price level of Argentina based on the two indicators. Indicators for Inflation (2005- 2010) Year Inflation, GDP deflator (annual %) Consumer price index (2005 = 100)       2005 8.840489896 100.00 2006 13.42627796 110.90 2007 14.25823933 120.70 2008 19.06845032 131.06 2009 9.977458276 139.28 Source: World Databank 2011 The data collected from the World Databank gives us an insight into the inflation prevalent in Argentina. Initially, the GDP deflator exhibits that the Real GDP grew slower than the nominal GDP which means the price level rose in that period. However the GDP deflator decreased sharply in 2009. The Consumer Price Index exhibits a steady rise in the period from 2005 to 2009. We shall also consider the Unemployment Rate of Argentina. The trend of inflation has further been demonstrated by the GDP deflator curve in the following diagram... World Databank 2011 The Consumer Price Index number shows an increase over time. World Databank 2011 The trend confirms that though the consumer price index has grown steadily across time, the GDP deflator experienced a sudden drop in 2009. Unemployment The relationship between inflation and unemployment is inversely proportional. According to the theory of Phillip’s Curve, a country experiences a drop in unemployment with a rise in inflation. We shall take a look at the unemployment rates of the country in the corresponding years. Unemployment Rate of Argentina (2006 - 2010) Year Unemployment Rate Change 2005 14.8 -14.45% 2006 11.6 -21.62% 2007 8.7 -25% 2008 8.5 -2% 2009 7.9 -2.06% 2010 8.7 10.13%       (Indexmundi, 2011; World Databank, 2011) The unemployment rate shows a decrease over the years 2005 to 2010. This indicates the country performing well in terms of employment to their citizen. (Indexmundi, 2011; World Databank, 2011) Therefore we see that in Argentina inflation and unemployment follows an inverse relation which confirms the theory of Phillip’s Curve. Monetary Supply of Argentina A rise in the money supply will lead to a rise in the demand for assets. An increase in money supply changes the balance between interest rate and money supply in the market. The surplus money holding of the people will be utilized to purchase assets. As a large number of people compete to purchase assets, there will be a shortage of assets. As a result there will be an adjustment of the interest rate of the assets. The interest rate of the assets will fall at the point where people are willing to purchase less number of assets. At that point they will be willing to hold more liquidity. In this way a new equilibrium will be established. Therefore there exists an inverse relation between money supply and interest rate, at a constant price ...Download file to see next pagesRead More
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