Got a tricky question? Receive an answer from students like you! Try us!

Macroeconomics. Price level - Essay Example

Only on StudentShare
Undergraduate
Author : geohermann
Essay
Miscellaneous
Pages 6 (1506 words)

Summary

In the short-term view, inflation and unemployment are inversely proportional to each other. That means when unemployment is high, price level keeps low and when inflation goes high, unemployment takes a down turn. The problem with this phenomenon is that the government and the regulators of an economy would ideally want to keep both the unemployment level and inflation at as low as level possible…

Extract of sample
Macroeconomics. Price level

Economists have noted that in long run, inflation and unemployment becomes increasingly unrelated to each other. That means a change in the unemployment seems to have little or no effect on the inflation and vice versa.
Inflation is also inversely proportional to the total consumer spending. As inflation goes up consumers are wary of spending and hold their purchases as dearly as possible. This is due to the fact that when prices rise there is also a hike in the expected price levels in the future that has an adverse effect on the consumer spending. When prices increase the consumer spending power comes down and disposable incomes are significantly lower.
When unemployment is low and there is an increase in price level, wages will rise in response to higher prices. This is because in low unemployment situation, employees can successfully demand full compensation for the higher prices. This has spiralling effect on both the wages and general input costs along with the rate of inflation. All these factors tend to leapfrog each other under low unemployment.
When unemployment is moderate, however, the employees will not be compensated in full and will have to settle for less, and so the wage costs do not rise as fast as prices when unemployment is high. ...
Download paper
Not exactly what you need?

Related Essays

Macroeconomics. The oils price
However, how the various economic indicators behave during this short period of 'supply shock' and how they forecast performance or health of the economy in the coming period is the moot question.…
10 pages (2510 words)
Macroeconomics Article
It deals with the aggregated indicators such as price indices, GDP, unemployment, inflation, savings, investments, national income etc. It looks at prices of all goods and of all services. In short, it looks at whole economy. Macroeconomics also deal with the exchange rates. The higher will be the exchange rate, the lower will be the international demand due to expensive products.…
4 pages (1004 words)
Macroeconomics (inflation)
The inference is not necessarily correct: other explanations are equally logical and sufficiently important to be worth serious consideration. Many countries might experience inflation at the same time without international transmission of inflationary forces because they respond in the same way to common causes (Wickens 54). All countries have undergone long-period institutional and structural changes which, although not in themselves inflationary, have made them more vulnerable to inflation. One of these changes is a widespread increase in the resistance to reductions of nominal prices and…
6 pages (1506 words)
Macroeconomics Essay
They are hesitant of hiring new workers that they cannot sustain in the long run. In order to remedy this situation, they engaged in maximizing the production efficiency of individual workers to match the expected level of production.…
9 pages (2259 words)
macroeconomics
More specifically, it is a study of national economies and the determination of national income." According to Wikipedia, "Macroeconomics is the study of the entire economy in terms of the total amount of goods and services produced, total income earned, the level of employment of productive resources, and the general behavior of prices. Macroeconomics can be used to analyze how best to influence policy goals such as economic growth, price stability, full employment and the attainment of a sustainable balance of payments."…
7 pages (1757 words)
MACROECONOMICS
has an affect upon the macro economics as it is the tool to attract more consumers towards the banking instruments, not only from the domestic investors but also from the foreign investors.…
4 pages (1004 words)
Macroeconomics
The outcome of these models is a comprehensive understanding of the business cycles and the economic growth in the long run and the short run respectively. These results in turn help the government and the central bank of the economy to determine the policies that would be ideal for an economy in a particular scenario. The government of a country and the central bank act as the major policy making bodies in an economy and thus their roles in the molding of the economic system of a country are quite significant. This essay analyses some of the popular macroeconomic models that have been widely…
10 pages (2510 words)