@2010Inflation and Unemployment IntroductionInflation is defined as a trend in increase in prices for a certain period of time. Inflation is determined by considering the Retail Price Index (RPI) which involves comparing of prices per month for those goods that are commonly purchased by the customers. The value that is acquired is expressed as an index number of one hundred and then the total per month is compared. The government also uses RPIX to measure inflation, a tool that excludes the mortgage interests. Inflation may be classified into three classes depending on the cause of the inflation.
The first one is the Demand-pull inflation which occurs as a result of increase in demands for goods and services that pulls the prices up. This results in an increase demand for wages and consequently the prices of commodities. Cost push inflation is where the prices of imports rise hence pushing the prices for all other commodities. For example a rise in the prices of oil may lead to a rise on the prices of many other commodities. Money supply inflation is explained by the monetary theory as an inflation that is caused by an increase in supply of money.
The amount of money in circulation raises leading to a fall in its value (Hudson 1999). Inflation may have both negative and positive effects. To the lenders and borrowers of funds, the borrowers may benefit while the lenders loose. Borrowers may benefit since they will be paying little amount in real terms in times of inflation since the interests rate may be low. To the lenders, they will loose because the repayments will be little that expected in real terms.
People demand a rise in wages form the government and the government may in turn require a rise in payment of taxes. Those people whose income rates are fixed may also be on the losing end since the prices of commodities rise and their incomes cannot be adjusted. Unemployment id defined as the number of people who are willing and are qualified to work but do not have the job to do. Employment is counted as the number of people who have registered with the government as unemployed and have forwarded their claims for benefits.
Unemployment rate is therefore defined as the number of workers who have no jobs and are found in the official records. Unemployment may be in various forms depending on the cause. Seasonal unemployment results in the jobs that are determined by the seasonal or the time of the year, for example jobs in the agricultural or the tourism sectors. Frictional unemployment is where some people have been declared redundant or where people are changing form one job to another.
Structural unemployment results where the demands for goods and services change followed by changes in technology. Cyclical unemployment results when the general demand in the economy is low and most firms require few workers. Technological unemployment is caused by automation of the work and improvement in technology. International unemployment is caused by high prices on low quality goods in the UK while regional unemployment is caused by concentration of a large number of the dying industries in a particular region. Voluntary unemployment is where the worker may decide to stay unemployed where they are getting more money from other sources other than employment.