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Macroeconomics, this article, any good?

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http://www.reuters.c...E89U0GV20121031

I have found this article although i'm quite confused how i can start my IA and which diagrams to use and how to evaluate this. I have read that the shorter the article and the precise, the better. So there it is...I know i can talk about Phillip curve as my diagram but what else? Please help me on this as soon as possible.

Edited by shad0wboss

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I don't know what is Phillip curve :P But you can talk about how when the central bank cuts interest rates, the consumption which is one component of AD [AD=C+I+G+(X-M)] would decrease and saving would increase, thus shift the AD to the left, now when AD shifts to the left the new equilibrium price is lower, which means less inflation.

Then you might talk about how the fall in AD would increase unemployment, because at lower equilibrium point, firms produce less (as there are not many people buying or consuming) and so they will probably start to lay off workers.

Edited by MLI

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I am taking SL Econ, but as Phillips Curve shows an inverse relationship between inflation and unemployment, you absolutely can use it, because as i mentioned before you might discuss how cutting out interest rates reduces inflation but in the long-run increases unemployment, so then you can merge the two concepts together using Phillips Curve :) which is cool :D

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I don't know what is Phillip curve :P But you can talk about how when the central bank cuts interest rates, the consumption which is one component of AD [AD=C+I+G+(X-M)] would decrease and saving would increase, thus shift the AD to the left, now when AD shifts to the left the new equilibrium price is lower, which means less inflation.

Then you might talk about how the fall in AD would increase unemployment, because at lower equilibrium point, firms produce less (as there are not many people buying or consuming) and so they will probably start to lay off workers.

Is it possible that i talk about the phillips curve (inverse relationship between inflation and unemployment rate) in the analysis paragraph and since in the article it states "central bank might cut interest rates" therefore i talk about that in the evaluation part?

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I don't know what is Phillip curve :P But you can talk about how when the central bank cuts interest rates, the consumption which is one component of AD [AD=C+I+G+(X-M)] would decrease and saving would increase, thus shift the AD to the left, now when AD shifts to the left the new equilibrium price is lower, which means less inflation.

Then you might talk about how the fall in AD would increase unemployment, because at lower equilibrium point, firms produce less (as there are not many people buying or consuming) and so they will probably start to lay off workers.

Actually, you said that saving would increase and consumption would decrease if central bank cuts interest rates. In fact it is the opposite because if interest rates are lower, people would borrow more money and the consumption would increase, no?

Also i'm having problems filling up the analysis part lol. I have drawn a phillips curve where it shows that inflation decreases from 2.6% to 2.5% along the curve, resulting in an increase in unemployment rate.

Then i talk about how this has occurred which is mentioned in the article that the prices of food go up and the rate at which prices of energy have decreased.

After i talk about the point you mentioned, the interest rates are cut down, which decreases the saving and increases the consumption. I only have 400 words now and two simple diagrams. What else can i talk about...i'm clueless because macroeconomics, i just missed half of the classes since i had stopped IB in the middle due to severe reasons and now i'm clueless plus i have mocks to study for as well.

Please, some help would be greatly appreciated and life saving XD

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Oops my bad! you are right, now it's fixed, : when the central bank cuts interest rates, the consumption which is one component of AD [AD=C+I+G+(X-M)] would increase and saving would decrease, thus shift the AD to the right, now when AD shifts to the right the new equilibrium price is higher, which means more inflation, you can refer to demand-pull inflation (because inflation is caused by an increase in the AD)

At higher equilibrium point, firms need to produce more because there are more people buying or consuming, as a result there will be an increase in the cost of factor of production and so a shift in the SRAS to the left. (you can refer to cost-push inflation)

Try using the Economics "course companion" book it's really helpful.

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