1.3 economic performance Flashcards
activity rate/participation rate
proportion of the population of working age in a job or actively seeking work
Harrod-Domar model
model illustrating the importance of savings and investment as key factors of economic growth
investment
increase in the capital stock of an economy
money illusion
when individuals confuse nominal and real values when making economic decisions
net inward migration
when the number of migrants entering a country exceeds the number exiting the country
net outward migration
when the number of migrants entering a country is less than the number exiting the country
non-accelerating inflation rate of unemployment (NAIRU)
the rate of unemployment consistent with a country experiencing a stable rate of cost and price inflation
speculation
when uncertainty of the future impacts economic transactions
stagflation
high inflation and high unemployment
unemployment rate
the unemployment level as a proportion of the labour force
negative output gap
actual output is below long run potential output
negative output gap of Y1 YF in short run
economy isn’t using resources efficiently
positive output gap
economy is producing above potential
not sustainable
workers getting tired
macroeconomic objectives
inflation rate of 2% + or - 1%
economic growth, measured by an increase in real GDP
full employment
current account equilibrium where inflows are equal to outflows
balanced budget, government spending = tax revenue
reduce inequality
protect the environment
recession
two or more consecutive quarters of negative growth
recovery
part of the business cycle where real GDP is increasing
slump
where real GDP is decreasing
boom
where GDP is highest
negative output gap
actual GDP is below trend GDP
economy isn’t using resources efficiently
positive output
actual GDP is above trend GDP
economy is producing above potential and overusing resources
not sustainable
workers get tired and machinery breaks
potential trend GDP
sustainable rate of GDP growth caused by improvements in productive capacity over time
why can’t unemployment go below the NRU in the long run?
due to Milton Friedman’s view of expectations
what do the SRPC and the LRPC show?
economic policies to reduce inflation won’t work unless the NRU itself decreases
this is because in the short run economic policies to reduce unemployment below the NRU will lead to inflation
in long run, unemployment will end up back at the NRU anyway
how will decreasing national minimum wage decrease the NRU?
decreasing the national minimum wage could decrease wage costs, making it cheaper to hire workers and therefore reducing real wage unemployment
(real wage unemployment occurs when wages get stuck above the equilibrium)
lower real wage unemployment will decrease the NRU
how will an increase in investment in training programmes decrease the NRU?
could help workers learn new skills such as computing
increases occupational mobility
decreases structural unemployment
