Macro: Inflation and Demand Curve Essay

Submitted By Joolyyy1
Words: 604
Pages: 3
Open Document
News article titled as Eurozone unemployment hits record, inflation falls reports the latest Eurozone statistics released by Eurostat in 1st March, 2013. It indicates an ideal that unemployment rate soars while the inflation rate falls greatly. In another word, this article reflects one of significant principle of economic which is society faces a short-run trade-off between inflation and unemployment. Under the context of widely-affected debt crisis, article states that newly published official statistics shows that “unemployment in the 17-nation Eurozone rose to a record 11.9 percent in January from 11.8 percent in December, with nearly 19million people out of work.”(McManus, 2013) In the other hand, Eurozone’s inflation rate maintained its stability at 2.0 percent in January 2013 and financial experts expect it will stays its ground since the high unemployment rate expected to be maintain its trend until year 2014. Base on such phenomenon, economy principle of a short-run trade-off between unemployment rate and inflation embeds in the fact of news. In the following, essay explains why higher employment rate leads a decreasing or stable inflation rate in short run. Firstly, financial experts indicate high unemployment rate “reflects the state of consumer demand which inevitably suffers at times of high unemployment when people worry about job security and prefer to save their money rather than spend it.”(McManus, 2013) As a result of global economy downturn, individuals observe the trend of increasingly high unemployment rate and result in a weaker demand of purchase goods and service as people might worry about job security and consequence of financial crisis. Then refers to graph 1 which further illustrates on how high unemployment rate leads to a relatively low inflation rate as it presents the demand and supply curve of people in Eurozone. Demand curve shows as downward sloping while supply curve presents as upward sloping. As a result of decreased demand of purchase goods and service, the demand curve then shifts to left from the initial demand curve and marks as the new demand curve while the supply curve remains the same. At this time, the market continues sells goods and service at the initial price where states as P1, but people only can purchase lesser quantity of goods and service at this price. Thus, a surplus of goods and services will created in the
Show More

Related Documents: Macro: Inflation and Demand Curve Essay

Adaptive vs Rational Expectations Essay example

Differentiate between Rational and Adaptive Expectations and clearly explain their role in focusing on future macro-economic variables 1. Rational Expectations The theory of rational expectations was first proposed by John F. Muth of Indiana University in the early 1960s. He used the term to describe the many economic situations in which the outcome depends partly on what people expect to happen. Rational expectations theory is an assumption in a model that the agent under study uses a forecasting…

Words 1457 - Pages 6

Factors That Determine The Exchange Rate

include interest rates, inflation rate, trade balance and of course speculators. As a general rule, high inflation will lead to depreciation in the value of a domestic currency, and a vica-versa. If the inflation in the UK for example is relatively high in comparison to other countries, the value of the pound will tend to reduce. High inflation in the UK means that UK goods increase in price quicker than say European goods. Therefore UK goods become less competitive. Demand for UK exports fall and…

Words 1650 - Pages 7

Inflation: Inflation and Ad Curve Shift Essay

Inflation Introduction: Nowadays, more people pay their attentions on one word, “inflation”, because of the weak global economy. Inflation is when rising of general price level for goods and services happens with decreasing of purchasing power for people. In a short sentence, when inflation happens, people cannot use same amount of money to buy same amount of purchases as much as before. For finding out if inflation happens and what extent it has done, we always use CPI (Consumer Price Index)…

Words 1947 - Pages 8

Introduction to Property Economics Essay

of: Scarce finite resources for the attainment of the maxiumum possible satisfaction of societys collective needs. Micro-economics – Concerned with specific economic units and detailed consideration of the behavior of these individual units Macro-economics – Deals with thte economy as a whole, or with the basic subdivisions or aggregates that make up an economy Scarce Resources Property resources Land Raw materials Capital Human resources Labour Entrepreneurial ability Land Land…

Words 6819 - Pages 28

Economics Paper

“Principle of Macroeconomics”, Case, Fair, and Oster present their intellectual studies of macroeconomics to produce better economy for the future. In pursuit of doing so, they are spill their knowledge out about the money demand and equilibrium interest rate, aggregate demand in the goods and money market, aggregate supply and the equilibrium price level, the labor market in the macroeconomy, and the financial crisis, stabilization, and deficits within the economy. All of these subjects are a crucial…

Words 4389 - Pages 18

Essay about ECON 102 Pdf

Thursday March 19! ! Chapter 30 Inflation and Disinflation ! You will learn! - wages respond to output gaps and inflation expectations ! - how constant rate of inflation is incorporated into basic microeconomic model ! - how AD and AS shocks affect ! - what happens when BOC validates demand/supply shocks (validation process)! - three phases of inflation! - how cost of disinflation is measured by sacrifice ratio ! ! Effects of Inflation ! - failure to anticipate inflation impost costs to labour market…

Words 2090 - Pages 9

Essay about Inflation and Price Level

using the unemployment rate -Observation-Long run- the economy tends to grow at an average annual rate of about 3% per year. Potential GDP * Aggregate demand- Aggregate Supply (AD-AS) model uses a variation of the traditional supply-demand format to explain both long and short run movements in real GDP. * Characteristics of aggregate demand- supply model. * Two of the three key macroeconomic goals (economic growth and stable prices) are reflected by the graphs axis. * The other key goal…

Words 1205 - Pages 5

Intro to Economics Essay

participant in the economy (makes you wealthier) 3. give you a better understand the potential and limits of economic policy -helps you be a more informed citizen (vote smarter) Macro vs. Micro -Micro: how individuals, families, single markets, single firms, how people/ companies make decisions -Macro: how all of the markets work together; closely associated with govt economic policy -Fiscal Policy: congress (tax and spend) -Monetary Policy: Federal Reserve Bank (central bank…

Words 1253 - Pages 6

Economic: Macroeconomics and Aggregate Demand Essay examples

Cambridge: MIT Press. Heakal, R., 2008. “What is the Balance of Payments.” Investopedia.. May 29, 2008. . Helpman, E., 2004. The Mystery of Economic Growth. Cambridge: Harvard University Press. Karras. G., 1993. Money, inflation, and output growth: Does the aggregate demand aggregate supply model explain the international evidence? Review of World Economics 129(4), 662-674. Keynes, J., 1936. The General Theory of Employment, Interest, and Money. London: Macmillan. O'Sullivan, A. and Sheffrin…

Words 1646 - Pages 7

Unemployment and Differently Shaped Curve Essay

Principles of Macro Test Review This being the first econ test for many of you, my goal is simply to ascertain whether you have absorbed the material in the book and listened to lectures. No tricks! Each of the questions below demands either a straightforward recitation of information or a simple analytical explanation. Now, on the test, I may (or may not) give you some context for asking the question. But the gist of your answer will be the same. My best advice to you is: READ THE BOOK!!!!!…

Words 886 - Pages 4