This is the high-level macroeconomics IA that was given a grade of 7 by IB instructors, which helped me get my final score of a 7. Follow this structure and you'll be guaranteed high marks.
This article is about how as inflation has slowed in Germany, the unemployment rate has
risen to a high unseen in previous years.
The Phillips Curve may explain the situation. First proposed by economist Alban Williams
Philips, it proposes an inverse relationship between inflation and unemployment. It
postulates that amid high inflation, which is a consistent increase in average price levels in a
country, employers can offer high salaries, therefore attracting more people to the workforce.
Furthermore, because of the high costs of living, people pursue higher incomes, so they are
more motivated to seek better jobs.This makes the unemployment rate, which is the amount
of people who are of working age that are without work, available for work, and seeking
employment, go down because more people become employed. The reverse is also true;
when inflation is slower, unemployment rises as people aren’t pressed for capital and
employers have greater difficulty attracting people.
The relationship can be seen in the following graphs:
In Graph 1, the inflation rate decreases from 1.7% to 1.4%, as stated in the article, which
reflects a movement along the Phillips Curve (the red line), from Point A to Point B.
However, this comes with consequences, as the decrease in the inflation rate raises the
number of unemployed people by 4,000 versus that before the decrease, representing the
change on the graph from the original X (number of unemployed) to X+4,000. Therefore, any
movement on the graph when inflation decreases comes with an increase in unemployment.
This can also be analyzed in Graph 2. Here, the red line represents Short-Run Aggregate
Supply, which is upward-sloping because there is a positive relationship between the price
level and the amount of output that Germany supplies in the short run. The green lines
represent Aggregate Demand, which is downward-sloping because there is an inverse
relationship between the average price level and the total real output demanded. According
to the article, the German market was originally at equilibrium at Point A, with price at P1
and output at Y1, so a slowing of inflation would lower the price level to P2. However, this
would also result in less output, from Y1 to Y2. Less output signifies fewer people becoming
employed, hence an increase in unemployment. The new equilibrium would be at Point B.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller perinaili63. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $9.43. You're not tied to anything after your purchase.
