# Analyzing relationship between inflation rate and per capita GDP growth

Essay by khayalaUniversity, Master'sA+, April 2010

Student number: 0903642

Program: Financial and Economic Sector Policies

Course title: International Macroeconomics and Policy

Assignment title: Analyzing relationship between inflation rate and per capita GDP growth

Introduction

There have been different theories for explaining crucial relationship between inflation and per capita GDP growth. In this paper we will consider the neoclassical model and wage equation. This approach is very useful in terms of flexibility to understand underlying assumptions behind the theory. Along with this, this model does include the adjustments in real wages, which is very important while determining relationship between unemployment, inflation and growth. To prove that this theory holds in practice we will examine a country based example. For this purpose we will analyze some macroeconomic data of Azerbaijan and try to link them to see how the theory works in reality.

In the first part we will have a look at some theoretical issues and describe the relationship between inflation and unemployment, and then inflation and per capita GDP growth.

The second part deals with economic processes that have been happening in Azerbaijan during last few years. Obviously, to understand the essence of macroeconomic statistics and some correlations and deviations from theory it is very important to know some key facts about economy. And finally, in the third part, we will look through some statistics and figures and try to observe theoretical issues in practice.

Neoclassical wage equation, Philips curve and Okun's law

# Диаграмма1

 20.8 16.7 8.3 9.6 6.7 2.2
Philips curve

# Лист1

 Philips curve 6.1 20.8 6.5 16.7 6.8 8.3 7.6 9.6 8.4 6.7 9.7 2.2

# Диаграмма1

 2.2 6.7 9.6 8.3 16.7 20.8
Inflation rate

# Лист1

 Столбец1 Inflation rate 2003 2.2 2004 6.7 2005 9.6 2006 8.3 2007 16.7 2008 20.8

# Диаграмма1

 896 1060 1600 2500 3900 5400
GDP per capita

# Лист1

 Значения Х GDP per capita 2003 896 2004 1060 2005 1600 2006 2500 2007 3900 2008 5400

# Диаграмма1

 5400 3900 2500 1600 1060 896
Okun's law

# Лист1

 Okun's law 6.1 5400 6.5 3900 6.8 2500 7.6 1600 8.4 1060 9.7 896

# Диаграмма1

 2.2 6.7 9.6 8.3 16.7 20.8
GDP per capita versus inflatiоn

# Лист1

 GDP per capita versus inflatiоn 896 2.20 1060 6.70 1600 9.60 2500 8.30 3900 16.70 5400 20.80

# Диаграмма1

 9.7 8.4 7.6 6.8 6.5 6.1 6
Unemployment rate

# Лист1

 Столбец3 Unemployment rate 2003 9.70 2004 8.4 2005 7.6 2006 6.8 2007 6.5 2008 6.1 2009 (est) 6