Macro: Inflation and Demand Curve Essay

Submitted By Joolyyy1
Words: 604
Pages: 3

News article titled as Eurozone unemployment hits record, inflation falls reports the latest Eurozone statistics released by Eurostat in 1st March, 2013. It indicates an ideal that unemployment rate soars while the inflation rate falls greatly. In another word, this article reflects one of significant principle of economic which is society faces a short-run trade-off between inflation and unemployment. Under the context of widely-affected debt crisis, article states that newly published official statistics shows that “unemployment in the 17-nation Eurozone rose to a record 11.9 percent in January from 11.8 percent in December, with nearly 19million people out of work.”(McManus, 2013) In the other hand, Eurozone’s inflation rate maintained its stability at 2.0 percent in January 2013 and financial experts expect it will stays its ground since the high unemployment rate expected to be maintain its trend until year 2014. Base on such phenomenon, economy principle of a short-run trade-off between unemployment rate and inflation embeds in the fact of news. In the following, essay explains why higher employment rate leads a decreasing or stable inflation rate in short run. Firstly, financial experts indicate high unemployment rate “reflects the state of consumer demand which inevitably suffers at times of high unemployment when people worry about job security and prefer to save their money rather than spend it.”(McManus, 2013) As a result of global economy downturn, individuals observe the trend of increasingly high unemployment rate and result in a weaker demand of purchase goods and service as people might worry about job security and consequence of financial crisis. Then refers to graph 1 which further illustrates on how high unemployment rate leads to a relatively low inflation rate as it presents the demand and supply curve of people in Eurozone. Demand curve shows as downward sloping while supply curve presents as upward sloping. As a result of decreased demand of purchase goods and service, the demand curve then shifts to left from the initial demand curve and marks as the new demand curve while the supply curve remains the same. At this time, the market continues sells goods and service at the initial price where states as P1, but people only can purchase lesser quantity of goods and service at this price. Thus, a surplus of goods and services will created in the…