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Analysis Of The Rate Of Unemployment As Related To Inflation Rate - Essay Example

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The paper "Analysis Of The Rate Of Unemployment As Related To Inflation Rate" gives detailed information about a historical inverse relationship between the rate of unemployment and the rate of inflation in an economy. This means that lower unemployment is correlated with a higher inflation rate…
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Analysis Of The Rate Of Unemployment As Related To Inflation Rate
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Analysis Of The Rate Of Unemployment As Related To Inflation Rate

Download file to see previous pages... Low standard errors help to infer that the sample drawn for estimating is truly representative of the population and gives a power to the statistical inference to a study (Vassilis, 2008).If there is no significant difference between the standard errors of the two samples we can consider that they belong to the same population or in the other way the test results are same with respect to a particular parameter. This curve is a historical inverse relationship between the rate of unemployment and the rate of inflation in an economy. This means that lower unemployment in an economy is correlated with a higher inflation rate. When high levels of both inflation and unemployment also take place then it is called stagflation and violates the principle of the forecast of the curve. To consider this anomaly various modifications of this curve has taken place. For example, New Kenysian “Dynamic Stochastic General Equilibrium” models based on macroeconomics has been developed with sticky prices it is reflected that there is a positive relationship between the rate of inflation and the level of demand and thus a negative relation between the rate of inflation and rate of employment occurs. In the context of this article, we concentrate on the money wage Phillips curve given by the equation gW= gWT – f(U) where g is the equivalent of the percentage rate of growth of the variable, W is the money wage rate and signifies the total money wage costs per production employee, which includes the benefits and the payroll taxes. Hence the focus is on the production workers money wages as these costs are crucial to a firm for making financial decisions. The equation tells us that the growth of money wages rises with the trend in growth of the money wages (T) and falls with the unemployment rate(U). The function (f) is assumed to monotonically increase with U so the dampening of money- wage increases by unemployment is reflected by the negative sign. ...Download file to see next pagesRead More
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