Inflation and Unemployment Nexus – Nigeria ( a Result of Philips Hypothesis)

Inflation and Unemployment Nexus – Nigeria ( a Result of Philips Hypothesis)

INTRODUCTION

BACKGROUND OF THE STUDY

In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. The measure of inflation is the inflation rate, the annualized percentage change in a general price index, usually the consumer price index, over time. The opposite of inflation is deflation. Inflation affects economies in various positive and negative ways. The negative effects of inflation include an increase in the opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings, and if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future. Positive effects include reducing unemployment due to nominal wage rigidity allowing the central bank more leeway in carrying out monetary policy, encouraging loans and investment instead of money hoarding, and avoiding the inefficiencies associated with deflation. Economists generally believe that the high rates of inflation and hyperinflation are caused by an excessive growth .A more exact definition of inflation is a situation of a sustained increase in the general price level in an economy. Inflation means an increase in the cost of living as the price of goods and services rise. Inflation leads to a decline in the value of money. “Inflation means that your money won’t buy as much today as you could yesterday.” The inflation rate is the annual percentage change in the price level. Unemployment rate is the number of people actively looking for a job as a percentage of the labour force. The unemployment rate is defined as the percentage of unemployed workers in the total labor force. Workers are considered unemployed if they currently do not work, despite the fact that they are able and willing to do so. The study seeks to appraise inflation and unemployment nexus in Nigeria. A result of Philips hypothesis.

STATEMENT   OF   THE PROBLEM

Rising rates of unemployment and inflation paint a picture of unsatisfactory macroeconomic performance of the economy, a situation known as stagflation. Some economists have argued that it is not possible to have low rates of inflation and unemployment as policy outcomes, consequently policymakers ought to decide what rate of inflation should be sacrificed for an acceptable rate of unemployment. (Ekpo, 2012).The question becomes: Is there a trade-off between inflation and unemployment? If such a trade-off exists, then it follows that policy options are necessary to determine the precise tradeoff between inflation and unemployment necessary for the Nigerian economy. It is thus crucial that our policymakers determine the appropriate (acceptable) rates of inflation and unemployment for the economy. Inflation and unemployment remain burning issues in any economy. All policymakers would to a large extent, wish to have low rates of inflation and unemployment. It is often argued that a single-digit rate of inflation and an unemployment rate of about five per cent would ensure macroeconomic stability in an economy all things being equal. Macroeconomic stability is essential for growth, planning and development, hence the desirability of examining the movement of other economic fundamentals if the goal of stability will be achieved. Inflation, which connotes the general increase in the price level, is broadly an average measure because at any point in time, prices may be increasing, decreasing or constant; a persistent increase in prices hurts the economy, particularly the poor who have little or no savings to cushion rising prices. The average person in any household or family knows when the money in his possession can only purchase less quantity of goods and services than was previously possible. Generally, economic agents (households, private sector and government) would raise an alarm because their earnings have declined in real terms due to rising prices. It is even worse when uncertainty follows price increases. (Nwaobi, 2009). The problem confronting the study is to appraise inflation and unemployment nexus in Nigeria. A result of Philips hypothesis.

OBJECTIVE   OF THE STUDY

The Main Objective of the study is to appraise inflation and unemployment nexus in Nigeria. A result of Philips hypothesis

; The specific objectives include

1 To determine the level of inflation and unemployment in Nigeria.

2. To determine the impact of inflation on unemployment.

3 To determine the result of Philips hypothesis.

RESEARCH QUESTIONS

1 What is the level of level of inflation and unemployment in Nigeria?

2 What is the impact of inflation on unemployment?

3 What is the result of Philips hypothesis?

STATEMENT OF THE HYPOTHESIS

The statement of the hypothesis for the study is stated in Null as follows

HO   The result of Philips hypothesis is not applicable in Nigeria.

SIGNIFICANCE OF THE STUDY

The study addresses inflation and unemployment nexus in Nigeria. A result of Philips hypothesis. It provides relevant data for the effective formulation and implementation of policies which will further stimulate the economy to economic growth and development.

LIMITATION OF THE STUIDY

The study was confronted with logistics and geographical factors

DEFINITION OF TERMS

INFLATION DEFINED

Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money. It is a loss of real value in the medium of exchange and unit of account within the economy.

MONETARY POLICY DEFINED

Monetary policy is the process of controlling the supply, availability, cost of money or rate of interest. Monetary policy is usually used to attain a set of objectives oriented towards the growth and stability of the economy

EMPLOYMENT RATE DEFINED

This is the percentage of the labor force that is employed and also constitute one of the economic indicators that economists examine to help understand the state of the economy.

UNEMPLOYMENT RATE DEFINED

This constitutes the number of people actively looking for a job as a percentage of the labour force. The unemployment rate is defined as the percentage of unemployed workers in the total labor force. Workers are considered unemployed if they currently do not work, despite the fact that they are able and willing to do so.

TOTAL LABOUR FORCE DEFINED

This consists of all employed and unemployed people within an economy.

PHILIPPS CURVES DEFINED

The Phillips curve is an economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship

. The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment.