Concept Of Inflation

What do we mean by the concept: “Inflation”?

Inflation basically means increasing prices of goods and services through the economy resulting in loss of buying power. We can see this loss when a steady dollar amount buys less of an item over time. It is one of the major threats that will cause or even destroy years of economic growth if let go and not stopped. It is feared by banks globally and forces the execution of monetary policies that are inherently unpopular. As a result many persons become unfairly richer and other poorer. Inflation over the years have ripped apart entire economies and changed the course of the world’s history. Inflation caused the demise of the Roman Empire two thousand years ago and the empire of the Soviet Union

Deflation is an indication the economic conditions are deteriorating. Deflation is usually connected with lots unemployment, and is only corrected after wages decrease. Also businesses’ profits decrease greatly during periods of deflation, making it more difficult to increase extra capital to expand and develop new technologies

Disinflation is the fall in inflation because of decisions and measures of authorities. It shows the rate of change of inflation. For example if Trinidad inflation rate is 7% and decreases to 6% it can be said that Trinidad is experiencing disinflation for the first quarter of the year.

UNEMPLOYMENT

1. Distinguish between unemployment and the natural rate of unemployment.

Unemployment is occurs when a person who is searching for employment but is unable to get a work. Unemployment is used to measure the health of an economy. The most used measure is the unemployment rate, which is the number of unemployed persons divided by the number of persons in the labor force. While the natural rate of unemployment is figured out by looking at the rate persons are finding jobs, compared with the rate of people quitting their jobs. At any time, people are either employed or unemployed.

2. List and explain the various types of

In the early years when agriculture was the main employer of labor, and while the economy blossomed from an agriculturally based economy to an energy based economy, the capital intensive nature of the energy sector left the government and entrepreneurial (particularly services) sectors to be the main employers in the economy. The fall in unemployment was accompanied by increased economic activity in the domestic economy; this coincides with the negative relationship between these two variables that is described in Okun‘s law. Okun’s law refers to the relationship between changes in a country‘s unemployment rate and economic growth rate. Simply put it seeks to give an idea of how much a one per cent growth in the economy will impact the unemployment rate. The differenced version of Okun‘s law2 suggests that for Trinidad and Tobago a one per cent increase in real GDP yields a fall in unemployment of 1.0 to 1.4 per cent. Similar analysis for the two other main economies in the region, Barbados and Jamaica (for the period 1980-2011) finds that in the case of Barbados a one per cent increase in real GDP results in a fall in unemployment of between 1.7 and 2.4 per cent. In the case of Jamaica a one per cent change in real GDP had an insignificant effect on unemployment. Downes (1998) found that in the case of Trinidad and Tobago increased GDP resulted in reduced