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What is the relationship between economic growth and changes in Australia's...

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user6221763 | (Level 1) eNoter

Posted June 23, 2013 at 3:37 AM via web

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What is the relationship between economic growth and changes in Australia's unemployment rate in terms of the following:

Okuns Law, NAIRU, Phillips Curve; government spending, international competitiveness, structual change, real income

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Kay Morse | College Teacher | (Level 1) Senior Educator

Posted June 28, 2013 at 12:07 AM (Answer #1)

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The original Philips Curve showed a stable relationship between inflation and unemployment. As inflation rose, unemployment rose at a consistent stable rate.

In the 1970s the stable relationship began to breakdown with a more intricate economy. Friedman and Phelps posited an explanation for this breakdown. According to them, there are more than one Phelps Curves. The Phelps Curve is engineered to illustrate a variable relationship between rising inflation and rising unemployment. As inflation rises, unemployment rises at variable rates: "in the long-run, there is no trade-off between unemployment and inflation" (Tim Harford, EconomicsOnline).

Thus for Australia, it can be said that economic growth occurs when inflation and unemployment are stable: economic growth in an economy does not occur during periods of rising inflation and rising unemployment.

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