Introduction

This project comprises of topics taught in class, which aided in the presentation of a real world phenomenon. This project also consisted of questionnaires, graphical representation of these questionnaires, along with the analysis of the data collected; which also helped in creating the phenomenon.

AIMS

From this research students should be able to:

1.Apply abstract economic theory to a more practical, real world situation

2promote the idea to independent research

3Learn about how banks operates as it relates to the different loans available

ObjectivesThese include the following:1.Define inflation and analyze the causes and consequences of inflation 2. Define unemployment and analyze the causes and consequences of unemployment 3.To carry out a comparative analysis of the cost and consequences of both inflation and unemployment 4. To analyze and present the data provided by the selected samples.Method of Investigation

The researcher intends to obtain secondary data from the B.0.J., the statistical institute and the P.I.O.J. as well as from the government publication. Primary data will be obtained from a questionnaire given to persons selected at random. Information will also be obtained from observation and the speeches of government officials and politicians. Information will also be obtained from the internet. The information obtained from the questionnaire will provide the major source of data.

ReportA major function of the government in a mixed economy is known as stabilization. This includes the pursuit of the following objectives: 1. Full employment2. Price level stabilization 3. A reasonable rate of economic growth 4. Balance of payment equilibrium 5. Exchange rate stability Addressing the issue of inflation and unemployment is paramount to any economy. The issue is l ' so important that economists have developed the misery and the discomfort index. This is the sum of the inflation rate and unemployment rate. Inflation is defined as the persistent or sustaining increase in the general price level. The essence of inflation is that it reduces the real value or purchasing power of one's nominal income and wealth. There are three different types of inflation, but the major two consists of demand pull inflation and cost push inflation.

Demand pull inflation occurs when aggregate demand increases and the economy is at or close j to full employment. In the short run the aggregate supply curve is perfectly inelastic and shortages will develop, pushing prices upward. Cost push inflation occurs when the cost of a production increases due to an increase in the price of resources and firms pass on the higher cost to the consumers in the form of higher prices. Unlike demand pull inflation cost push inflation occurs on the supply side of the economy. Inflation poses several problems for any economy, especially small open economy like ours. In countries like Jamaica, inflation causes the Jamaican dollar to depreciate in relation to other foreign countries, causing further inflation. Inflation causes the nominal interest rate to increase, discouraging consumption and investment. Inflation causes local residents to substitute foreign for local goods.

Unemployment is a condition in which persons find themselves without a job even though they are willing to accept a job at the existing wage rages and have been actively seeking employment within the past four weeks. There are four basic types of unemployment, namely: frictional unemployment, structural unemployment, demand deficient unemployment and real wage unemployment. Frictional unemployment is a temporary type of unemployment that occurs when persons are between jobs. Structural unemployment arises from a change in the structure of demand and from a change in technology. For example, if there is a decrease in demand for a certain product, there will be a decrease in the demand for labour. Demand deficient unemployment arises from an insufficient amount of total spending or aggregate demand, to purchase the full employment output. In this case total spending is less than total output. Real wage unemployment occurs when workers demand a wage rate above the equilibrium. Unemployment has carries many consequences, some of which will be stated.

Firstly, some people end up losing their jobs or even earning less income, and therefore causing government to collect less income tax and also less general consumption tax. Secondly, there is j a loss of human capital as the level of skills knowledge and experience will tend to decrease.

Thirdly, persons without a job tend to suffer from low self-esteem, which can lead to marital problems, especially when the man is unable to provide for his family. In closing, in many countries, the authorities choose a trade-off between the rate of unemployment and the rate ' of inflation; this gives rise to a relationship known as the Philip's Curve. That is, when the rate of unemployment is higher the rate of inflation is low and vice versa. Below are graphical representations of the rate of inflation as well as the rate of inflation for various years.

DATA PRESENTATION

This section will show you the data collected in this research. Figure 1 below shows what respondent think is the problem most affecting Jamaica. From the graph it can be seen that 8 out of a total of fifteen respondents think that our major problem is our high level of unemployment. Six out of the fifteen stated that it is the rate of inflation that is our most serious problem. Only one respondent sated that there are other factors that is contributing to our problem.

When asked the question what policy should the government pursue, 12 of the respondents stated to grow the economy, two said they should try to reduce the rate of inflation and only one stated that we should try to reduce the level of unemployment.

With response to the question which do you prefer, eleven (11) stated a booming economy three said more jobs and only one of the fifteen respondents stated low prices.

In response to the question as it relates to reducing inflation 12 stated that we should try to cut government spending, one said increase the rate of tax and 2 respondents stated that we should try to reduce public spending on wages.

Of the fifteen respondents who were asked what measure they think the authorities should take to reduce unemployment nine (9) stated that we should try to grow the economy four (4) stated that we should build more factories and one stated that we should increase the jeep program

When asked which sector provides the most job 9 out of the fifteen respondents stated that it was the manufacturing sector, 3 stated tourism 2 stated sports and entertainment and one said farm work.

Nine (9) out of the fifteen respondents stated the acquiring new skills and experiences is what we gain most from overseas employment, increase remittance is next with 4 of the fifteen respondents and three stated that we gain from first world development.

The diagram below shows respondent view on the most dangerous effect of inflation. Eleven (11) of the respondent stated that inflation leads to loss of jobs, four (4) stated that less taxes are collected by government and one persons stated that it leads to less income being earned

ANALYSIS OF DATA

In response to the question, ''Which do you think is a more serious problem's 8 out of 15 or 53% says the high rate of inflation is the more serious problem 6 out of 15 or 40% say the rate of unemployment and 7% or 1 out of 15 stated other. This response is quite strange. In the context of a global recession, where thousands of persons have lost their jobs, it is expected ' that the rate of unemployment would have been seen as the more serious problem. The reason for this is that the questions may have been directed to the persons who are currently employed and would not see the rate of unemployment as a big issue.

In response to the question, ''Which policy should the government pursuer 2 (13%) persons chose policies to reduce inflation, 12 (80%) persons preferred policies to grow the economy and 1 (7%) person chose policies to reduce crime. Policies to increase economic growth are likely to impact positively on the rate of unemployment and crime. As the economy grows, by definition, there is an increase in G.D.P. and as output increases, demand for labour will increase. This is so since the demand for labour is a derived demand. Some people resort to crime due to joblessness and a loss of income. Source of income could encourage persons to desist from illegal practices.

When asked the question, ''Which do you preferred 1(6%) person prefers low prices, 3 (20%) persons chose a job and 11 (74%) persons chose a booming economy. This response is consistent to the question of an increase in economic growth. As the economy grows by definition, more goods and services are provided, more income is generated and the level of spending increases. This is what a booming economy entails. The rate of unemployment will fall but the rate of inflation could increase, particularly demand pull inflation.

''What measures should the authorities take to reduce inflationary 14 (93%) of them preferred cutting government spending while 1 (7%) chose a reduction in public sector wages. Many Jamaicans are dissatisfied with regards to how the governments spend their taxes revenue collected and money that was borrowed. They feel that government spending involves a waste of money in many instances. A cut in government spending will not only decrease inflation, but would have other spin-offs. It would reduce the 1 level of debts and release more money for private sector investments. It could also lead to a decrease in demand for loan able funds and interest rates would fall. In fact, this policy could lead to economic growth.With regard to the question, ''What measures can the authorities take reduce unemployment?'' 9 respondents which represented (60%) chose manufacturing, 4 (27%) chose tourism and the last 2 (13%) chose sports and entertainment. In the eyes of many Jamaicans, the lack of economic growth is the cause of many problems that face the economy. As was mentioned previously, growing the economy would solve several problems is that growth in the economy would be driven mainly by the private the private sectors and not by the government. However, the over-riding belief is that the government has the solution to all problems and is blamed for all problems. This explains why 27% of the respondents claim that the government should build factories. This however is the responsibility of the private sector.

The response to the question asked, ''What sectors of the economy could create the most jobs?'' 9respondents or (60%) chose manufacturing, 4 respondents or (27%) chose tourism and the last 2 (13%) chose sports and entertainment. The respondents have chosen a sector that is plagued with several problems. Most of these problems contribute to the high cost of production, which has rendered many local businesses uncompetitive. However, a robust manufacturing sector could create some relatively good paying jobs; however, this requires a more skilled and more productive labour force. The country is in a precarious position and becoming like our Caribbean neighbors who are totally dependent on tourism. An increase in crime and bad publicity, as well as a recession in developed countries could totally destroy the industry. There is need for greater) diversification within the economy which could make it less dependent on this sector.

In response to the question, ''What are some of the ways in which the country benefits from overseas unemployment?'' 4 respondents or (27%) chose increasing remittances, 7 respondents or (47%) preferred acquiring new experiences, only one respondent (6%) preferred earning foreign exchange and the last 3 (20%) chose being exposed to first world countries. Up to recently, remittances were Jamaica's largest source of foreign exchange. After the global recession it was replaced by tourism. The minister of labour has been keen about finding jobs for Jamaicans overseas. In a time of rising unemployment, this source could absorb a number of idle hands. Persons who work abroad will always send back money to friends and relatives. This response is quite reasonable and timely.

In response to the question, ''What caused you to lose your job's 3 (20%) said frictional unemployment, 5 (33%) said structural unemployment and 2 (13%) said demand deficient unemployment. Based on the responses, the majority of persons lost their jobs due to structural unemployment. To improve competitiveness, some firms may have updated from labour and replaced it with machines. Others may have chosen to down- size and re-structure their business, resulting in some workers becoming casualty. In a global recession it is expected that more persons would have sited demand deficient as their cause of unemployment. The fact that a number of persons have been leaving school or getting fired they would have difficulty in finding jobs in an economy which is not growing. These persons will eventually find a job, but the process would be quicker if the economy was booming.

In response to the question, ''Which do you this is the most dangerous effect of inflationary 11 (73%) chose loss of jobs, while the other 4 (27%) chose less income tax collection.

These responses are based on the mistaken view that an increase in inflation leads to unemployment. Inflation is likely to occur in the boom stage of the business cycle, but during this time, the rate of unemployment is low. This is based on what is known as the Philip's Curve.

However, the type of inflation that could lead to unemployment is cost push inflation which takes place on the supply side.

The table below shows the rate of inflation and the rate of unemployment for different years. These diagrams help to solidify the whole concept of the Philips Curve. This concept states that there is an inverse relationship between the rate of inflation and the rate of unemployment; that is, the lower the rate of unemployment in an economy, the higher the rate of inflation, and vice versa. Findings

An increase in economic growth will cause persons who were once unemployed to become employed; hence causing persons who use to resort to violence would now be preoccupied with jobs. Jamaican people are not satisfied with how the government is spending the tax revenue. People found that the rate of inflation is the most serious problem the country faces.

Recommendation

1. The nation should establish the proper mix between full employment and price level stability. There is to be a strong recognition that Jamaica's main source of inflation is cost push inflation and not demand pull inflation. They should employ supply side measures, that is, instead of reducing aggregate demand to decrease inflation, they should pursue measures to increases aggregate supply. Such measures will establish full employment equilibrium where there is neither inflation nor unemployment.

2. More focus should be placed on building supply capacity, such as buildings, roads, bridges, highways, irrigation facilities, and so on. These measures will improve the ' physical infrastructure. Measures to be taken to reduce the cost of energy by the use of wind, solar and other cheaper sources of energy. 3. The level of government bureaucracy should be reduced making it easier to conduct business.

4. The rate of interest must be addressed. The bank must be willing to lend money to the real sector and not just for consumption, and must decrease interest rate.

5. The economy needs to venture capital fund so that new businesses can be identified ' and started quickly.

6. Government should cut its spending and ensure that there is no waste of tax payers money.

7. Policies must be pursued to stop the currency from depreciating. This could be done by refusing import licenses for products that we are currently producing and educate the public about the need to purchase local products. Every Jamaican should be notified that when they purchase foreign products, they contribute to the depreciation of the local currency.

References

Hosein R; F Stanlake Economics for CXC 1st Edition Longman publishing 2009

Website

http//:www.tradingeconomics.com/Jamaica/unemployment-rate access February 20013.

http//:www.tradingeconomics.com/Jamaica/inflation-cpi access February 20013.

QUESTIONNAIRE

Place a tick in the box that corresponds with your answer.1 Which do you think is a more serious problem facing the country?

Rate of unemployment

Rate of inflation

Others

2 What policy should the government pursue:

Policies to reduce inflation

Policies to grow the economy

Policies to reduce the countrys crime rate

3 Which do you think is the major problem affecting Jamaica?

High inflation

High unemployment

Others

4 Which do you prefer:

Low prices

More jobs

A booming economy

5 What measures should the authorities take to reduce inflation?

Cut government spending

Decrease the money supply

Reduce public sector wage bill

Increase the rate of taxation

6 What measures can the authorities take to reduce the level of unemployment?

Pursue policies to grow the economy

Expand the Jeep programBuild more factories

Pursue policies to reduce energy cost

7 What sectors of the economy could create the most job presently?

Manufacturing

Tourism

Sporting and entertainment

Farm work program

8 What are some of the ways in which the country benefits from overseas employment?

Increasing remittances

Acquiring new skills and experiences

Earning foreign exchange

Being exposed to first world countries

9 Are you presently working?

Yes

No

10 If no what cause you to lose your job?

___________________________________________________________________

11 Which do you think is the most dangerous effect of inflation?

Loss of jobs

Earning less income

The government collecting less income tax

A decrease in general consumption tax