Evaluate How Expectations Affect The Actual Relationship

The trends in unemployment affect three important macroeconomics variables: 1) gross domestic product (GDP), 2) unemployment rate, and 3) the inflation rate.

First, I will discuss the time period between 1973-1974. Because the unemployment and inflation rates are higher than normal, we can assume that the aggregate-demand curve is downward-sloping. When the aggregate-demand curve is downward-sloping, we know that the economy’s demand has slowed down. When the economy’s demand has slowed down, businesses have to choice but to raise prices and lay off workers in order to preserve profits. When employers throughout the country respond to their decrease in demand the same way, unemployment increases.

Conducting the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices.

The adaptive expectations theory assumes people form their expectations on future inflation on the basis of previous and present inflation rates and only gradually change their expectations as experience unfolds. In this theory, there is a short-run tradeoff between inflation and unemployment which does not exist in the long-run. Any attempt to reduce the unemployment rate blow the natural rate sets in motion forces which destabilize the Phillips Curve and shift it rightward.

During discretionary fiscal policy the government spends and taxes to change the economy during a particular problem. Both Congress and the president have to take action when they agree that the economy is in need. When they do this they are trying to simulate the economy during a time of recession. Economists thought discretionary fiscal policy would eliminate the instability of the recession, however most had given up on the idea by 1980.

Couples are optimistic in relationships, especially when they are committed to each other. Some require extra attention while others are easy to please. At first, most people are not very demanding due to fear of scaring the other person away. However, over time this attitude changes. Difficult to please people have no inhibitions about pointing out disapproval. This can be a range of little things, such as not washing dishes after dinner or keeping the toilet sit down, all the way to absolute control over insignificant details. Expectations that are hard to meet bring uncertainty to a relationship. Some examples of this are requesting an expensive diamond ring for a wedding when you do not have the income, or demanding a vacation to an exuberant place or having to buy a house right away when you have insufficient credit. Other expectations can be reasonable, but harder to meet. A seemingly easy expectation is family or church weekly visitation. Just because you enjoy it does not mean everyone in your household does. Other examples include personal habits and house chores among

In the study of macroeconomics there are several sub factors that affect the economy either favorably or adversely. One dynamic of macroeconomics is monetary policy. Monetary policy consists of deliberate changes in the money supply to influence interest rates and thus the level of spending in the economy. “The goal of a monetary policy is to achieve and maintain price level stability, full employment and economic growth.” (McConnell & Brue, 2004).

Unemployment can also be directly affected by the Federal Reserve. If the Federal rate goes up, there will be less spending which ...

Employment for individuals in the durable goods industry decreases during an economic contraction. During an economic contraction a shortage of jobs is caused by deficient aggregate demand, this leads to cyclical unemployment. (Harrington, 2013). Aggregate demand is the total amount of goods and services demanded in the economy at a given price and in particular time period. (Investopedia, 2013). Skilled production workers who produce durable goods are mostly affected by cyclical unemployment as consumers reduce spending on durable...

Figure 4 shows the curve sloped downward from left to right and that inflation and unemployment are inversely related. The negative relationship between inflation rate and unemployment rate can be explained by the aggregate demand, AD and aggregate supply, AS model. An unexpectedly large increase in AD raises the inflation rate and increase real GDP, which lowers the unemployment rate. Hence, higher inflation is associated with lower unemployment shown by a movement along a short run PC. Thus, when there is high inflation, there is low unemployment and when there is low inflation, there is high unemployment. For example, based on Table 1 and Table 2 in ...

The spending power of the unemployed reduces when there is insecurity about the jobs and rise in the taxes. A rise in the unemployment rate has a significant impact on the economic factors like the health costs, income of a person, quality health care and the standard of leaving. Thus, the indicator unemployment rate should be kept as lower as possible.

Inflation according to Pettinger (2014) links the increase in prices with unemployment because it discourages businesses to invest, creating the uncertainty and lowers the investment in turn there are lesser jobs created on the market. Recession is a temporary decline in the economic cycle leading to the reduction of industrial activity because of this it affects the business sector and consumer spending creating massive layback on the labor market thus workers are lay off from employment because of the losses. Business cycles are unpredictable when there is a contradiction in the economic perspective, businesses are dealt with reduced revenues leading to workers being lay

Monetary policy refers to the measures which the central bank of the country takes in controlling the money and credit supply in the country with a view to achieving certain specific economic objectives. These objectives are:

The “unemployment rate is directly related to the economy’s aggregate output.” (Case, pg.93) The unemployment rate is a main indicator of any economy’s health. When people have work, they can spend, which can boost the economy. When many people are out of work, production is down as well as consumption. Consumption is also lowered by inflation. Inflation lowers buying power for consumers and investors. “When the overall price level of the economy rises, consumers have to spend more in order to purchase the same amount of goods.”