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Problems of Interaction between Aggregate Demand, Inflation and Unemployment

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  • Gheorghe H. Popescu
  • Cristian Florin Ciurlau

    ()

  • Alin Ionuþ Ciurlau

    ("Dimitrie Cantemir" Christian University)

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    Abstract

    Current economy, without exception, recorded fluctuations in the general level of economic activity, represented generally by gross domestic product (GDP). The development trend illustrates a hypothetical dynamic of economy, drawn by joining the points that would be a constant evolution of the economy over a period of time, or, in other words, provide an estimate of potential output developments in labor productivity that economy could achieve in conditions of full employment of labor. The economy is typically located above or below the trend.In order to study this evolution, the science of macroeconomics uses a number of concepts or phrases such as "economic cycle", "business cycle", "cyclical fluctuations" and so on, between the fundamental variables whose components or sign up demand or aggregate expenditure, inflation and unemployment, which interact in a specific way. Cyclical unemployment is accompanied by underutilization of labor resources and incomplete use of plant and equipment. This is illustrated by an indication of the capacity utilization in the manufacturer's economy. Economy bear a cost when resources capital and labor are incomplete used. Production that could have been achieved with these productive resources is the opportunity cost of cyclical unemployment, and can be very high. Aggregate expenditure is total expenditure households, firms, government and external sector made for goods and services produced in the economy. Change affects costs of production and income, and their dynamics exert further effects on spending. Economies are constantly affected by various shocks, such as financial crises, rising oil prices, large fluctuations in the budget deficit, the explosion of transactions on the stock exchange, new technologies that affect entire sectors of the economy. There are, in fact, complexes of factors that have the potential to generate recession or expansion. In the face of these shocks, policy makers must ensure the potential savings in trying to keep inflation rates low and stable. The authors are concerned to highlight different aspects of the interaction between the three variables during significant phases of deployment cycle.

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    Bibliographic Info

    Article provided by Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest in its journal Knowledge Horizons - Economics.

    Volume (Year): 5 (2013)
    Issue (Month): 4 (December)
    Pages: 48-51

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    Handle: RePEc:khe:journl:v:5:y:2013:i:4:p:48-51

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    Related research

    Keywords: Aggregate demand; cyclical unemployment; inflation; expected inflation; the inflation adjustment rate short-term aggregate demand-inflation curve;

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