Employment + inflation and deflation

Question 1

What is full employment ?

Answer 1

the level of employment where those who are economically active can find work if they are willing to accept jobs at the going wage rate

Question 2

Why will some people still be unemployed at full employment?

Answer 2

• people switching jobs
• businesses failing
• people taking time to find vacancies

Question 3

What are the four types of unemployment?

Answer 3

• cyclical unemployment
• frictional unemployment
• structural unemployment
• seasonal unemployment

Question 4

What is cyclical unemployment?

Answer 4

unemployment caused by insufficient aggregate demand within the economy

• relates to the economic cycle

Question 5

What is frictional unemployment?

Answer 5

unemployment resulting from friction due to movements into and out of the job market (switching jobs)

Question 6

How can frictional unemployment be reduced?

Answer 6

• helping people with local and national job vacancies

Question 7

What is structural unemployment ?

Answer 7

unemployment resulting from mismatches between the labout supply and the labour demand for differently skilled labout

Question 8

What is structural unemployment associated with?

Answer 8

occupational immobility, regional unemployment

Question 9

What is cyclical unemployment caused by?

Answer 9

demand side factors

Question 10

What are frictional unemployment and structural unemployment caused by?

Answer 10

supply side factors

Question 11

What is inflation?

Answer 11

refers to the annual increase in the general level of prices, measured by CPI

Question 12

What is deflation?

Answer 12

a fall in average level of prices over time

Question 13

What is disinflation?

Answer 13

refers to concept of a falling rate of inflation

Question 14

What are the two causes of inflation?

Answer 14

• demand pull inflation

- cost push inflation

Question 15

what is demand pull inflation?

Answer 15

inflation caused by excessively high levels of aggregate demand beyond that needed to generate full employment

Question 16

Explain demand pull inflation?

Answer 16

• high spending levels signals to firms to increase output and as a result prices, as we get close to full capacity this higher output and cost will cause inflation

Question 17

What is cost push inflation?

Answer 17

inflation that occurs due to rises in the costs of production incurred by firms

Question 18

Explain cost push inflation?

Answer 18

• if any of the costs of production increase, rise in costs will reduce prodit margin leading to higher prices

Question 19

Effects of a fall in the exchange rate on cost push inflation?

Answer 19

higher costs for imported materials

Question 20

What is stagflation?

Answer 20

higher prices, falling output (stagnent growth in output and inflation occuring together

Question 21

What is a commodity?

Answer 21

a homogenous product that is often used as a basic input into production

Question 22

Examples of commodities?

Answer 22

oil, coppoer, minerals, basic food

Question 23

What is the result of volatile commodity prices?

Answer 23

commodities are often traded for the purposes of making porifts through speculation on future price changes

Question 24

Effect of oil prices on inflation rate?

Answer 24

• oil is important as an input to industrial production
• oil producing nations coordinate production decisions, restricting the quantity of oil being produced leading to higher prices

Question 25

What is an open economy?

Answer 25

an economy in which trade accounts for a significant proportion of GDP

Question 26

Give an example of an open economy?

Answer 26

• UK

Question 27

What is the consequence of an open economy?

Answer 27

changes in other economies can affect inflation in the UK in a number of ways

Question 28

What ways can other economies effect the UK

Answer 28

• growth in foreign economies will increase demand for UK exports (could lead to demand pull inflation)
• recessions in major trading partners will ease demand pull pressure due to reduced spending on UK exports
• increased growth overseas will lead to higher demand for commodities and other basic production materials. UK may experiance cost push inflation
• changes in exchange rate between currencies will effect inflation