Scribd Logo
Upload

Welcome to Scribd!

  • 22 views

    Unemployment V/s Inflation

    Uploaded by

    Revatee Huril
    William Phillips published a seminal work in 1958 that argued there is a strong negative relationship between unemployment and inflation, known as the Phillips Curve hypothesis. This tends to be true in Senegal, where declines in inflation in 1998 and 2003 were accompanied by rises in unemployment. Unemployment in Senegal means resources are not being efficiently used to produce output, leading to declines in GDP and dampened economic growth, as seen with a 1% fall in GDP in 2004 associated with a 16% rise in unemployment. Higher interest rates in 2009 in Senegal were also associated with higher unemployment, as the rise in interest rates and savings led to reduced aggregate demand and layoffs, causing unemployment to increase.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Unemployment V/s Inflation

    Uploaded by

    Revatee Huril
    22 views3 pages
    William Phillips published a seminal work in 1958 that argued there is a strong negative relationship between unemployment and inflation, known as the Phillips Curve hypothesis. This tends to be true in Senegal, where declines in inflation in 1998 and 2003 were accompanied by rises in unemployment. Unemployment in Senegal means resources are not being efficiently used to produce output, leading to declines in GDP and dampened economic growth, as seen with a 1% fall in GDP in 2004 associated with a 16% rise in unemployment. Higher interest rates in 2009 in Senegal were also associated with higher unemployment, as the rise in interest rates and savings led to reduced aggregate demand and layoffs, causing unemployment to increase.

    Original Title

    LINK Senegal

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    William Phillips published a seminal work in 1958 that argued there is a strong negative relationship between unemployment and inflation, known as the Phillips Curve hypothesis. This tends to be true in Senegal, where declines in inflation in 1998 and 2003 were accompanied by rises in unemployment. Unemployment in Senegal means resources are not being efficiently used to produce output, leading to declines in GDP and dampened economic growth, as seen with a 1% fall in GDP in 2004 associated with a 16% rise in unemployment. Higher interest rates in 2009 in Senegal were also associated with higher unemployment, as the rise in interest rates and savings led to reduced aggregate demand and layoffs, causing unemployment to increase.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    22 views3 pages

    Unemployment V/s Inflation

    Uploaded by

    Revatee Huril
    William Phillips published a seminal work in 1958 that argued there is a strong negative relationship between unemployment and inflation, known as the Phillips Curve hypothesis. This tends to be true in Senegal, where declines in inflation in 1998 and 2003 were accompanied by rises in unemployment. Unemployment in Senegal means resources are not being efficiently used to produce output, leading to declines in GDP and dampened economic growth, as seen with a 1% fall in GDP in 2004 associated with a 16% rise in unemployment. Higher interest rates in 2009 in Senegal were also associated with higher unemployment, as the rise in interest rates and savings led to reduced aggregate demand and layoffs, causing unemployment to increase.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    LINK

    Unemployment v/s inflation


    William Philips published his controversial seminal entitled “The Relationship between
    Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom” in the
    London School of Economics’ journal, Economica (Philips, 1958). This work was a very
    significant contribution to economic thought. In his findings, that later became “The Philips
    Curve Hypothesis”, William Philips, argued that there is a strong negative relationship
    between unemployment and inflation.
    This tends to prove true in the case of Senegal. In 1998, the inflation rate fell from 1.75% to
    1.16% leading to a rise in the unemployment rate by 0.053%. In 2003, the inflation rate was
    -0.05%, but still unemployment rose by 19.6%. Phillips hypothesized that when demand for
    labour low, and unemployment is high, workers are reluctant to accept lower wages than the
    prevailing rate, and as a result, wage rates fall very slowly. For Senegal, demand for labour
    was indeed low because of the inadequate number of jobs and unemployment was soaring.
    Since wages and salaries are a major input cost for companies, the rising wages lead to higher
    prices for products and services in the economy, ultimately pushing the overall inflation rate
    of Senegal higher.

    Unemployment v/s Economic Growth


    The gross domestic product or GDP, is arguably the most important indicator on the health of
    a country's economy. Different factors affect gross domestic product (GDP) and
    unemployment. However, historically, a 1 percent decrease in GDP has been associated with
    a slightly less than 2-percentage-point increase in the unemployment rate. This relationship is
    usually referred to as Okun's law.
    In 2004, Senegal’s GDP fell to 5.781% leading to a rise in unemployment of 16%.
    Nevertheless, the Okun law does not apply in all the years from 1992 till 2016 for Senegal.
    Unemployment in Senegal implies that the country is not efficiently using its resources to
    produce output leading to a fall in GDP and ultimately a dampened economic growth rate.
    Unemployment v/s interest rates
    As observed Diagram 1, interest rate was the highest in 2009 whilst unemployment rate was
    the second highest (10.223%) in the same period for Senegal. This evidences the fact that a
    relationship exists between unemployment and interest rates. The rise in interest rates in 2009
    caused an accretion in the level of savings in Senegal in the period 2010- 2011 evidenced by
    Diagram 2. The rise in the level of savings further lead to a dampened aggregate demand in
    Senegal causing firms to lay off workers and causing the overall unemployment rate to soar.

    Diagram 1

    Diagram 2

    You might also like