Using Australia\'s annual unemployment and inflation rate data over 1990 and 201

Question

Using Australia's annual unemployment and inflation rate data over 1990 and 2018, discuss the long-run trend and significant movement of these two variables and their relationships.

Year Inflation Rate (% 7.5 3.1 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 831 2016 2017 2018 1.7 2 4.7 2.6 Australain Inflation rate annually 1.5 4.7 3.1 2.7 2.3 2. 3.5 2.3 4.4 1.7 2.9 3.3 17.11.- 2.5 2.5 1.5 1.3 3.1 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2.1

Explanation / Answer

If we see the curve then we’ll find that in long run the inflation and unemployment follows a declining trend with some intermediate fluctuations in between. We know that the inflation in the market is inversely dependent on the level of unemployment existing in a country. This can be seen in the initial years that is from 90-93 where unemployment increases and inflation decreases. This trend is followed almost every in the curve. This inverse relationship between inflation and unemployment is because when the unemployment decrease more people will get the jobs and they start to earn which increases their buying capacity and when there are more people in the market for a good then the prices of the good increases ( more demand = more price of commodity). This increase in the prices of various commodities decreases the value of currency and hence the inflation will increase.

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