Question

Question 1 The bank of Jamaica states that inflation is under control in the country! A. Discuss the concept of inflation and identify its relationship if any to unemployment employment (10 marks) B. Assess the ability of the central bank to control inflation. (20 marks)

Answer 1

Solutions [A] Inflation . şimply speaking it may be defined as a situation of Continuous rise in general price level. Inother words it may be defined as a situation in which value of money iş falling Types of Inflation - Creeping inflation, Walking inflation. » Running inflation. > Galloping inflation. - Creeping inflation! is a type of inflation in which slow rise in prices of goods and services. Ikis so it is also known as mid inflation. > Walking inflation may be defined as a situation of moderate rise in price level. And it is the starting point of running inflation. So walking inflation is considered as the warning symbol for the government to control inthe rising inflation rate. - Running inflation It is the another type of inflation when prices rise rapidly od If this rate cannot be controlled until it le tuone turns to hyperinflation.

→ Galloping inflation. It is also known as jumping inflation. During this stager prices increases or reached two digit or three digit. Relationship between inflation and Unemployment The relationship between inflation and unemployment can be itt is explained by Edmund Phillipe curve shows that there is an inverse relationship between inflation and rate of unemployment.ie, if inflation rate is high unemployment rate will be low. On the other hand if inflation rate is low unemployment rate will be high [A situation of inflation and unemployment is called stagflation] - Az per phillips carve there to exişt negative or inverse relationship between inflation and & unemployment

The Central Bank of Jamaica get a napp medium term nflation target through Jamaica economic reform Programme. in September 2017 Inorder to acheive this target bank gets monetary policy accordingly. Comprising regular meetings etc Jamaica suffered high inflation rate during 90's due to economic refo reforms and inflation targeting measures they overcome a high or intreami alarming inflation rate and get inflation target rate of 4% and 6%. * Important tools to control inflation rate Central Bank of Jamaica uges important tools to control inflation rates are - overnight interest rates is may be defined as the interest rate get by the central bank to adjust monetary politiet - Reserve requirements. Reserve requirement is the cash or amount of money kept by the bank against their liabilities,

* financial supports : Bank of Jamaica got financial support from IME, IDP IDB, etc boas boost up the economy and kept inflation targeted range since 2017