2 It is known that currently there is high and increasing inflation in Ethiopia.

Moreover, there is also unemployment in Ethiopia. As Economics, what you say

about the major causes of inflation and unemployment. Put also your strong
suggestion regarding to mitigating the problems. Explain also the relationship
between inflation and unemployment following theories (6 points).

Causes of inflation,

• Demand-pull inflation – aggregate demand growing faster than aggregate

supply (growth too rapid)
• Cost-push inflation – For example, higher oil prices feeding through into
higher costs.
• Devaluation – increasing cost of imported goods, and also the boost to
domestic demand.
• Rising wages – higher wages increase firms costs and increase consumers’
disposable income to spend more.
• Expectations of inflation – High inflation expectations causes workers to
demand wage increases and firms...

The Causes of unemployment

The term unemployment is used to describe anyone who is able to work, but doesn’t
have an occupation. Unemployment is one of the most common and chronic
problems worldwide. It is a concern for individuals as well as global communities.
Unemployment is expressed as percentage of the total available work force that is
unemployed,.
the causes of unemployment include increased population, rapid technological
change, lack of education or skills and rising cost lead to financial, social and
psychological problems.
There are four main causes of unemployment. Firstly, the increased population
which leads to higher unemployment rates. As the number of people who are looking
for jobs is increasing, it is more difficult to arrange jobs for all these huge numbers
of workers. In this situation the demand for work will be more than the available
occupations.
There is a global rapid technological change which plays a big role in the increased
unemployment problem. Many jobs which were handled by hands are being done by
different machines and technology nowadays. The new advanced technology
replaced the low skilled or unskilled workers in different factories. This made
production faster and more accurate, but it resulted in more unemployed people.The
third cause of unemployment is lack of education or skills for employment. This
happens when the qualifications of a person are not sufficient to meet his job
responsibilities. If the education was not directed towards the labour market then a
mismatch occurs thus leading to structural unemployment. These individuals face
difficulties in learning new skills applicable for the required job e.g. computer skills,
management and communication. As the need for skilled and educated workers
increase for employers, the employment opportunities for those without a college
education decrease leading to higher unemployment rate.
Unemployment can be due to the rising cost. The rising cost makes it hard for the
companies to pay the usual optimum salary for the employees or even the minimum
wage in some cases. Hence, the employees reject low wage jobs and leave the
companies. Foe example if the price of petrol or electricity has increased this
definitely will affect the industries or factories which depend on these energy
sources. Moreover, sometimes companies need to cut down the budget due to an
economic crisis, industrial decline, company bankruptcy, or organizational
restructuring, so the number of employees is reduced or some positions are
cancelled which increases the unemployment rates.

Mitigation to the problem of unemployment

The various effects of unemployment include financial, social and psychological

problems. Unemployment has become a major problem which affects our life,
health, economy and community. So countries should build more companies and
factories in order to provide more opportunities and positions to respond to the need
of the increased population. Moreover, there should be unemployment insurance to
help unemployed individuals in their financial problems till they find a job. It is
important also to utilize the vocational education along with other skills courses’ in
order to prompt the education and skills of the workers to meet the labour market
need.

How Inflation and Unemployment Are Related

The relationship between inflation and unemployment has traditionally

been an inverse correlation. inflation and employment (and unemployment)
are some of the most closely monitored economic indicators, we'll delve
into their relationship and how they affect the overall economy.
Labor Supply and Demand
When unemployment is high, the number of people looking for work
significantly exceeds the number of jobs available. In other words, the
supply of labor is greater than the demand for it.
Let's take wage inflation—the rate of change in wages—as a proxy for
inflation in the economy. With so many workers available, there's little need
for employers to "bid" for the services of employees by paying them higher
wages. In times of high unemployment, wages typically remain stagnant,
and wage inflation (or rising wages) is non-existent.2
In times of low unemployment, the demand for labor by employers exceeds
the supply. In such a tight labor market, employers typically need to pay
higher wages to attract employees, ultimately leading to rising wage
inflation.3
Over the years, economists have studied the relationship between
unemployment and wage inflation, as well as the overall inflation rate.

Methods to Control Inflation

Inflation is generally controlled by the government. The main policy used is
monetary policy (changing interest rates). However, in theory, there are a
variety of tools to control inflation including:

1. Monetary policy – Higher interest rates reduce demand in the

economy, leading to lower economic growth and lower inflation.
2. Control of money supply – Monetarists argue there is a close link
between the money supply and inflation, therefore controlling money
supply can control inflation.
3. Supply-side policies – policies to increase the competitiveness and
efficiency of the economy, putting downward pressure on long-term
costs.
4. Fiscal policy – a higher rate of income tax could reduce spending,
demand and inflationary pressures.
5. Wage controls – trying to control wages could, in theory, help to
reduce inflationary pressures. However, apart from the 1970s, it has
been rarely used.

Despite the public sector’s efforts to reduce unemployment and create jobs, there is
a need for the private sector’s contribution, since it is considered a long term source
of most jobs. The private sector can create new jobs in new areas such as IT, which
can be a sustainable solution for the nation’s unemployment challenges.

3. Ethiopia is currently facing number of problems regarding to political stability and war.
Please write the major causes of war and instability. Next to this, write the socio-economic
effect of war on Ethiopian economy regarding to investment, consumption, and GDP in
general. What are the possible solutions to get back to stability? (6 points)
Political instability will remain high in 2022, given the civil conflict in the Tigray region. Despite
securing a clear majority in the June 2021 election, the prime minister, Abiy Ahmed, faces several
challenges, including bouts of ethnic violence and the slow pace of reform. Security concerns will
deter foreign investment and constrain growth in the short term, but recovering foreign investment
ontext and Updates on Current Issues in Ethiopia

Context
The killing of Hachalu Hundesa, an Oromo musician and rights activist
on June 29, 2020, has sent shock waves of anger, resentment, and
frustration throughout Ethiopia. Millions of his fans, citizens across all
ethnic and faith groups, and the Government of the Federal Democratic
Republic of Ethiopia have been deeply saddened by this disturbing and
tragic incident.

Following his death, protesters took to the streets in the Oromia region
and the capital Addis Ababa on June 30, 2020, to express their
grievance and to demand justice for the death of Hachalu. But not all of
them were peaceful. In the course of the protests, many citizens,
including government security members lost their lives. Hundreds of
people were wounded and private and state properties estimated in
millions of birr were destroyed within two days.

The government of Ethiopia has been working day and night to uncover
the identities of all those involved in the killing of Hachalu and the
masterminds behind this heinous act. We would like to assure all
Ethiopians and friends of Ethiopia that the government will leave no
stone unturned until justice is served and the perpetrators face justice.

The government of Ethiopia would like to highlight that there are a

number of rumors and misinformation being spread through social and
traditional media on the political situation in the country and the legal
measures undertaken by the government following this tragic incident.
Some international media have reported that the government had
“unlawfully” arrested opposition leaders. Some others have claimed
that the democratization process started two years ago is rolling back.
Some others went to the extent of saying that the government has
continued to “marginalize” certain ethnic groups. This is an attempt to
paint a wrong picture of the current political situation by highlighting
piecemeal information, with little effort to delve into what really caused
the current incident.

The Government of the Federal Democratic Republic of Ethiopia feels

responsible that it has to set a correct context in order to clarify the
existing confusion and bring about clarity regarding facts on the ground
and the transparency of its operation.

We cannot fully grasp the current situation without understanding two

main contexts that have to be put together in order to have a better
understanding:

6. The unabated attempt made by aggrieved forces to perpetuate

political tensions
7. Increasing political polarization and the negative role of media in
creating ethnic tensions
and the government's reform agenda will stimulate economic growth in 2023-26.