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
1 Answer | Add Yours
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.
We’ve answered 318,990 questions. We can answer yours, too.Ask a question