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Inflation and Unemployment in Australia

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             Producers and businesses will have to increase its prices on their goods and services as the cost of production increase, producers and businesses might make some workers redundant which will lead to an increase in Australia's unemployment rate. Savings left in bank account will depreciate in real value if nominal interest rate cannot keep up with inflation. There will be an increase in speculative behaviour as assets such as stocks will give a higher profit causing the economy to be more volatile and also lead to money and resources misallocated which will decrease the economy's productivity. This might lead to an appreciation of the dollar as overseas speculators will find it quite profitable and high interest rate in Australia to dampen inflation can lead to increased capital inflow. Australia's export will lose its global competitiveness due to the effect of cost-push inflation and also the appreciated dollar, this in the long-term will cause many businesses in Australia to out-source their production or just shut down, worsening the economic climate of Australia. Items, in terms of change in prices are also used to gauge the relationship between aggregate demand and supply, a measure at the pressure of aggregate demand on the economy.
             Borrowing will be more expensive as interest rate will tend to go up during inflation and also existing debt will be more expensive as the real cost of the repayment will be higher than before, but more money will be put into banks due to the high interest rate. The government although will get more tax due to more people being dragged into higher tax brackets due to wage increases and also GST are collected as the cost of goods are higher, but government will also have to spend more as the cost of funding or purchasing anything increases. Monetary policy is the main line of defence for government to tackle inflation as it is the fastest to affect the economy while fiscal policy plays a support role in maintaining low inflation.


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