Economic Growth - Inflation And Unemployment 3 Pillars of Economy

Question: Describe about the Economic Growth, Inflation and Unemployment? Answer: Introduction The three pillars of any economy are the indicators that ensure the stable situation. These three pillars are the economic growth, inflation rate and unemployment. Economic growth ensures that there is low unemployment and low inflation rates. There is an inverse relationship between growth and unemployment .there also exist an inverse relationship between the level of unemployment and the rate of inflation. This is depicted by the Phillips curve. This tradeoff between the two relevant indicators of the economy is repeatedly exploited by the policy makers. In short, the implementation of the macroeconomic policies is dependent on these three economic factors which in turn are interdependent. (TEMIN) Measurements: The economic growth is measured by the rate at which the percentage change in the quantity of goods and services produced vary from year to year. In other words it measures the growth rate of real GDP. For comparing the economic welfare by comparing international output and business cycle forecasting, real GDP is used. Economic welfare measures the economic well being. (Mankiw) The ideal measurement of inflation is the Consumer Price Index (CPI). It is a weighted index of price which captures the monthly change in the prices covering goods and services of over 600 varieties. The inflation is calculated by the percentage change in the price index over the years. This measurement ensures the level of price changes within an economy for a period of time. Another measure of inflation that needs to be mentioned is the Producer Price Index (PPI). It measures the average price level of a combination of resources that are needed by the producer for production like capital, rent and raw materials for the manufacturing of the consumer goods. The influence of PPI on the inflation is quicker than the influence of CPI. The most popular measurement of unemployment in the economy is the unemployment rate. It is estimated on the basis of two set of surveys on labor force. The first is the Current Population Survey (CPS) which is a survey is approached and based on 60,000 sample households and measures the unemployment rate based on the definition of the International Labor Organization. The second is the Current Employment Statistics Survey (CES) which is the payroll survey is estimated on 160,000 sample businesses representing around 400,00 workers. (Gottheil) Indicators: The economic indicators of the economic growth are established by the macroeconomic identity. The macroeconomic identity calculates the real GDP based on the consumption expenditure of the household, government expenditure, gross fixed capital formation and the net exports which include the exports and imports. All these factors constitute the level of real GDP in the economy and thereby indicate the level of economic growth. (Stats.oecd.org) The rate of inflation is indicated by its impact on the economy. The rate of inflation weakens the purchasing power of the consumers. Indicators of inflation include the unchecked growth in the in the economy. This fast economic growth implies that there is extra money in the economy which will increase the purchasing power of the consumers which in turn will raise the overall price and increase the wage rate. Also inflation can be initiated by the rise in the price of a single item like energy, oil etc. which will create a repercussion and tend to increase the overall level of price thereby causing inflation. (Bankofcanada.ca) There are several indicators of unemployment out of which the most important indicator is the unemployment rate. But the rate of labor force participation at all sectors, for men and women, based on all types of occupation give a vivid knowledge about the unemployment scenario in an economy. The labor force growth also helps to identify the level of unemployment in the economy. Current statistics and future prospects: The GDP is expected to grow at 3.3% from 2.4% in the year 2014. This is mainly due the increased consumer spending which augmented the investment creating new production capacity. The employment rate is expected to be stagnant in terms of monthly job gains in 2015 to around average of 260,000 which is equal to the job growth in 2014. But there is a likely increase in the work opportunity by improvement in the construction, food and housing market. The rate of inflation is expected to remain low. CPI will rise by 1.5% in 2015 as compared to the 0.8% increase in 2014. But the inflation rate will still be below the inflation target of 2%. Oil prices predicted to remain low. (www.kiplinger.com) Conclusion The acceleration or deceleration of the economy is connected to the three dynamic indicators. There is a three way relationship among them which cannot be avoided when analyzing the economic situation of the country. The impact of inflation and unemployment on the economic growth can be calculated based on the different measurement of the three indicators. Thus all macroeconomic policy has to rely on the interaction between economic growth, inflation and unemployment. References Bankofcanada.ca,. 'Inflation Indicators'. N.p., 2015. Web. 7 Mar. 2015. Gottheil, Fred M.Principles Of Macroeconomics. Mason, OH: Thomson, 2008. Print. Mankiw, N. Gregory.Macroeconomics. New York: Worth Publishers, 2007. Print. Stats.oecd.org,. 'OECD Key Economic Indicators (KEI) Database'. N.p., 2015. Web. 7 Mar. 2015. TEMIN, PETER. 'Productivity, Growth, Inflation, And Unemployment. By Robert J. Gordon. Cambridge: Cambridge University Press, 2004. Pp. Xii, 504. $130.00, Cloth; $48.00, Paper'.JEH64.03 (2004): n. pag. Web. www.kiplinger.com,. 'Economic Outlook, Indicators, Forecasts - Your Business-Kiplinger'. N.p., 2015. Web. 7 Mar. 2015.