F9

[mahjabeen]

Hi there

Can you please explain me the inverse relationship between employment and inflation.
In ***** notes of F9, it says there is inverse relationship between employment and inflation.

While, I was reading Phillip`s curve which describes inverse relation between unemployment and rate of change of money wages.

Can you please throw some light on these 2 statements(seems conflicting to me).

Looking forward for your replies.

Thanks
Mah

[Annie]

Hi Mahajabeen,

I think there is a inverse relationship between unemployment and inflation while a direct relation between employment and inflation.

Reasoning:

When employment increases, increased wages which manufacturer has to pay is included in the price of the product as a result the prices are pushed higher thus giving rise to inflation and people still can afford to purchase these products at a higher price as they are earning.


The philips curve too explains the same.


Hope this helps
Annie

[raymondhoh]

Hi Mahajabeen,

I think there is a inverse relationship between unemployment and inflation while a direct relation between employment and inflation.

Reasoning:

When employment increases, increased wages which manufacturer has to pay is included in the price of the product as a result the prices are pushed higher thus giving rise to inflation and people still can afford to purchase these products at a higher price as they are earning.


The philips curve too explains the same.


Hope this helps
Annie

do u hav any example to explain the inverse relationship between unemployment and inflation.

[Sonal]

relationship between employment & inflation (inflation means price rising)

If, in a manufacturing company, there are 100 workers and each worker is earning an average of $3,000 per month, then the company has to set the selling price taking this cost into account.
However, if in the same company, the number of employees increases to 200, then the salary expenses of the company will double. In this case, the company has to raise its selling price to maintain the profit ratio.
If the selling price and salary expenses both increase, then the profit ratio will be maintained up to a certain level. However, if salary costs increase and selling price does not increase, then this will adversely affect profitability

[Acid]

Hi ,

Take an example :

When more and more people are employed then ever before , means more people are earning now , as their earning increases so does their puchasing powers . So people buy more goods n services. As people with money are likely to spend more then poor ppl!

So when spending increases in the economy , money entering the economy increases and when money enters the economy , the inflation arise bcoz as demand of anything increases the supply decreases and thing gets more expensive.

Thats how we get the inflation!

I hope this helps..

Acid

[Annie]

Hi Acid,

Thanks

Annie