Using the UK as an example

1. Introduction

There are two critical factors of macroeconomics and two significant determinants of economic progress of an economy, one being economic growth as it reflects the productivity of an economy. The other being the unemployment rate, which is a measure of the number of people who are prepared and can work and are vigorously seeking work but are still unemployed. We would be able to see if one variable would increase or decrease, would the other variable be affected as well, creating a negative or positive relationship through the economic growth or unemployment rate. Therefore, in this essay, the discussion of the relationship between economic growth and unemployment rate will be critically analysed.

2. Economic Growth

Economic growth is defined in an economy by an outward shift in its Production Possibility Curve (PPC).  It is the increase in the goods and services produced by an economy, typically a nation, over a long period (Amadeo, 2019). Economic growth is what every economy tries to achieve for the good of everyone as a whole. However, many economists and the government look up to the Gross Domestic Product (GDP) as an indicator of its country’s economic growth, it can be measured in three ways. Though, all the methods give the same outcome.

Firstly, GDP can be calculated by adding up the value of all the final goods and services produced in the economy. This calculation determines the value added between businesses, the cost at which the seller sells the product removed from the price it was purchased for from the supplier. Secondly, is by adding up all income earned by factors of production from firms in the economy, such as the wages earned by labour, the interest paid to those who lease their land or structures to firms, etc. (Krugman and Wells, 2013). Lastly, another way is by adding up aggregate spending on domestically produced final goods and services. This calculation is the most commonly used formula for GDP, which depends on the money spent by different groups that take part in the economy. This consist of Consumer spending of goods and services (C), Investment spending on business capital goods (I), Government spending on public goods and services (G), and Exports minus Imports (X-M) (Bondarenko, 2006). The increase of any of these factors would lead to a rise in the economic growth of a country. This can be arranged into the following equation:

GDP= C + I + G + (X – M)

3. Unemployment rate

Another critical factor is the unemployment rate. This is defined as the percentage of unemployed workers in the total labour force. Workers are viewed as unemployed if they currently do not work, even though they are capable and willing to do so. The entire labour force consists of all employed and unemployed people within an economy and delivers insights into the economy’s additional capacity and available assets. Unemployment tends to be cyclical and reduces when the economy expands as companies employ more workers to meet growing demand and usually increases when economic activity slows (FocusEconomics, 2019). There are different types of unemployment:

The first is Cyclical unemployment, which is the change of the actual rate of unemployment from the average rate due to recessions in the business c