Macro Economics

MACROeconomics

2005

Macroeconomics

Introduction

Recession is a weird economy activity that happens not only to developing countries but also to superpower countries like United States . Consider the 1990 's situation . During the whole one-year period the U .S . economy experienced undulating unemployment rates

In May , the country counted over 119 .9 million of job vacancies available throughout the nations . Five months later , in October , the situation turned upside down when more than 500 ,000 workers lost their jobs . Within the same period , after the eight years of steady growth

br the real output declined for some time until the end of the first quarter in 1991 . In addition , U .S . also experiences high inflation in 1979 (11 .3 ) and 13 .5 in 1980

Unemployment and inflation are not solely the matter of U .S economy since other countries also experience these phenomena . The great depression in 1930 was a good example of worldwide impact on unemployment . While in 1970 , most countries experienced a high inflation due to the increase in the oil price . The vast availability of unemployment is one of countries ' major enemies besides inflation since they both are potential to increase the growth of criminal actions

In addition to unemployment and inflation , in this , I will discuss other issues of macroeconomics such as wages , interest rates , Phillips Curve models and many others . I will also discuss the given article in terms of employment and inflation

II . Theories

II .1 Wages and Interest Rates

According to Wikipedia (2005 , wages is the amount of money paid for some specified quantity of labor . In other words , wages are sum of money that a company pays its employees

Meanwhile , interest is rent on money . In broader meaning , it tells us about surcharge on the repayment of borrowed money (Wikipedia , 2005 Therefore , interest rate is the rental price of money . In the case of borrowed money , interest rate is the sum of money the borrowers pay for their use of money for a period of time (Wikipedia , 2005

II .2 Born of Phillips Curve Model

The Phillips Curve best describes the relation between unemployment and inflation . Named after the British economist A .W . Phillips , the curve first introduced in the 1950s and developed into its present form in the late 1960s by Ned Phelps and Milton Friedman (DeLong , 2000

According to Kevin J . Lansing , during the early 1960s , many economists and policymakers believed that monetary policy could exploit a stable trade-off between the level of inflation and the unemployment rate . One version of the hypothesized trade-off , originally described by A .W Phillips (1958 ) using U .K . data from 1861-1957 , implied that policymakers could permanently lower the unemployment rate by generating higher inflation (Lansing , 2002

For more than 25 years mainstream economists ' forecasts have rested on the idea that should unemployment fall below an unknown (but real ) level called the natural rate of unemployment , then inflation will start to rise . Under these circumstances , inflation will keep on rising further until unemployment climbs back up...