Which problem is greater: inflation or unemployment?

Which problem is greater: inflation or unemployment?

What is inflation? Inflation-sustained general rise in prices

Measures of inflation

Inflation rate-change in average

prices in an economy over a given period of

time.

Retail Price Index(RPI)

Consumer Price Index(CPI)

Types of inflation Creeping inflation-prices rise few percent

every year Hyper-inflation- large increases in price

each year

Inflation rate formula

Price index for year t

Price index for previous year

2007 2008 2009 2010 2011 2012 2013

-5

0

5

10

15

20

25

2007-2013 Inflation rates(CPI)

UkraineRussiaGreat BritainChinaSouth KoreaUsa

Causes of inflation:

Inflation

Demand-pull

Cost-push

Structural(Demand-shift)

Examples of inflation:Germany 1921-1923

• Was caused by the war.• 7 000 000 000 000% in 1923• Other countries that suffered inflation at

that time-Austria, Hungary, Poland, USSR

Serbia and Montenegro 1993-1995

Yugoslavia broke. Government printed money. Unemployment rose to 30% New currency “Dinar” was created. Inflation 5 000000000000000%(quadrillion) 12 Nov. 93 1 Deutsch mark=1million new

dinars 15 Dec.93 1DM=3.7 billion new dinars End of December 1DM=3 trillion new dinars. New new dinar created Novi dinar eliminated inflation

Zimbabwe 2004-2008

Unemployment Unemployed-those of working age who

are without work, but who are available for work at current wage rates

Labour force-those who are employed and unemployed.

UK government definition: Unemployed-people of working age who are without work, available to start working within 2 weeks and actively seeking employment, or waiting to take up an appointment

Feb 2013European Unemployment Data, courtesy of Eurostat

Types of unemployment Voluntary and Involuntary Frictional Unemployment Cyclical Unemployment Structural Unemployment Seasonal Unemployment

Costs of unemployment To employee-loss of earnings Lack of money cause problems in families Government gets less taxes (VAT) Firms lose profits Workers lose additional wages(higher

output) General increase of violence and crime

Unemployment

USA inflation and unemployment rates during the 1960s

Summary: Inflation and unemployment are essential

for economy Depending on inflation, unemployment

changes. Inflation is more crucial to control.

Sources http://index.minfin.com.ua/index/infl/ http://www.inflation.eu/inflation-rates/chi

na/historic-inflation/cpi-inflation-china.aspx

Sloman,J. Economics Pearson 2012 8th edition

Anderton A. Economics Causeway press 2007, 4th edition

Thank You!