Macroeconomics the study of the economy as a whole, and the variables that control the macroeconomy. The study of government policy meant to control and stabilize the economy over time, that is,
to reduce fluctuation in the economy.
Macroeconomic variables are indicators or main signposts signaling the current trends in the economy.
The most prominent of these variables are; Gross domestic product (GDP), Inflation, Interest rates and
unemployment but there are many others.
From the practical question given I was visited the World Bank (WB) and the two variables which I
choose are unemployment and inflation.
Unemployment means the situation where by the large number of people who are capable and willing
to work but cannot finds jobs in a certain country. Unemployment is categorized into different types
such as frictional unemployment, structural unemployment and cyclical unemployment.
From the data provided by the World Bank about inflation it seems that;
From 1997 the rate of unemployment was 6.062 and it was slightly increasing and in 1999 the rate of
inflation was high compared to the all years between 1997 to 1999. The causes of the increase in
unemployment rate may be due to economic recession or the natural rate of unemployment caused by
factors in labor markets, such as government regulations regarding hiring and starting business. Also in
those years there were few sources of employment opportunity such as industries compared to now
days. For stance in Tanzania at that period people depends most in agriculture and the tools uses was
very poor because mostly depend on hand hoe so even what they get was low so they can’t even
employ others.
From 2000 the unemployment rate start decreasing slightly but in 2007 the rate of unemployment was
rapidly decreased more than all the years between which the rate was 5.293 and from then the rate
start increasing slightly but in 2009 increased rapidly up to 5.9 and then after start decreasing slowly up
to 2017.
Inflation means the general rapid increase in price levels of goods and services in the economy over a
period of time (usually a year). The inflation based on two criteria namely; cause criterion and rate
criterion. In the rate criterion the inflation rate is divided into;
1. Creeping inflation this is when the price rises from 2-3% per year. It is not harmful to the
economy. It makes consumer expect that prices will keep going up, and the consumers buy now
to beat higher future prices. And from the World Bank data this kind of inflation have been
experienced in 2009, 2013, 2014 and 2017.
2. Moderate inflation this occurs when price rise from 4-5% per year. It is not harmful to the
economy though sometime may.
3. Hyper-inflation (run away or galloping inflation) a period when inflation rate are very high in the
economy this occurs when prices rises daily such that people losses confidence in their currency.
From the World Bank data the inflation trends shows that in 1997 the rate of inflation was high 5.534
percent and start declining slowly this may be because of the lack of rainfall which cause the price of
goods and services goes high, and also the fall of the currency of some countries.
In 2008 the rate of inflation was very high compared to all the years in 1997 to 2017 this is due to the
lack of raw materials to produce goods, high cost of production especially when you increase salary led
to the higher prices of goods and low investment rate, and this can contribute to the decrease rate of
unemployment especially in 2008 worldwide.
The inflation is one of the important variable in the economy and there is a relationship between
unemployment rate and inflation.
The Philips curve shows the relationship between inflation and unemployment. It shows the
combination of inflation and unemployment that arise in the short run as shift in the aggregate demand
curve move the economy along short run aggregate supply curve.
For stance an increase in wages or salary causes an increase in the supply of labor and therefore reduces
unemployment but it leads to increase in the cost of production and that is the reason for cost pull
inflation.