Inflation

Question 1

What is inflation?

Answer 1

Inflation is defined as an increase in the overall level of prices in an economy
Inflation is measured as the percentage rate of change of the average level of prices in the economy

Question 2

How is the general price index defined when measuring inflation?

Answer 2

A typical basket of commodities that reflects the spending pattern of a representative household

Question 3

What is deflation?

Answer 3

Deflation are a fall in the average level of prices (negative inflation)

Question 4

What is disinflation?

Answer 4

Disinflation is a fall in the rate of inflation relative to the previous period

Question 5

Why is deflation perceived to be bad for the economy?

Answer 5

Economic agents will see this as a sign that the economy is in terminal decline
People may postpone purchases to find lower prices in the future leading to a fall in demand and perpetuating the recession

Question 6

What defines being in employment?

Answer 6

People who are either working for firms or other organisations, or self-employed

Question 7

What defines being economically inactive?

Answer 7

People or working age who are not looking for work, for a variety of reasons such as students, retirement, or illness

Question 8

What are discouraged workers?

Answer 8

People who have been unable to find employment and who are no longer looking for work
They are part of those who are economically inactive

Question 9

What is the difference between economically inactive and unemployed?

Answer 9

Economically inactive includes all those people of working age who do not have a job and are not looking for a job
The unemployed are those who are in the workforce seeking jobs, but who are without jobs

Question 10

What is the number of employed an indicator of?

Answer 10

The number of those employed is an important indicator to the production process in their role as a factor of production (labour)

Question 11

Why is full employment a core macroeconomic policy objective?

Answer 11

Having large numbers of people without jobs means that the economy is not making the best use of its labour resources and is sacrificing potential output that could be produced

Question 12

Why will there always be people unemployment?

Answer 12

Frictional and Seasonal Unemployment

Question 13

Why is it not desirable to have the economy operating close to full capacity?

Answer 13

If the economy were to be operating very close to full capacity, this would be likely to put upward pressure on wages and thus prices. There would be conflict between achieving full employment and maintaining the stability of prices

Question 14

What does full employment really mean?

Answer 14

Full employment does not mean that unemployment will be zero but at a higher percentage

Question 15

How was unemployment measured before?

Answer 15

The measure of employment was the claimant count of unemployment by measuring the numebr of people registered as unemployed and claiming unemployment benefit (Jobseeker’s Allowance) (JSA)

Question 16

How does someone claim JSA?

Answer 16

People claiming JSA must declare that they are out of work, available for, and actively seeking work, during the week in which their claim is made

Question 17

What is a problem for using the claimant count to measure unemployment?

Answer 17

People claiming JSA may include people who are claiming benefit but not actually prepared to work
It also excludes people who would like to work and looking but not eligible for unemployment benefit

Question 18

What is the current measure of unemployment?

Answer 18

ILO unemployment rate is a measure based on the Labour Force Survey. This identifies the number of people available for work, and seeking work, but without a job.

Question 19

How does the ILO unemployment rate define an unemployed person?

Answer 19

Without a job, want a job, have actively sought work in the last four weeks and are available to start work in the next two weeks
Out of work, have found a job and are waiting to start in the next two weeks

Question 20

What are the disadvantages of the ILO unemployment data?

Answer 20

They are sample evidence, and extrapolated up to give the picture for the UK as a whole. The samplee cannot be guaranteed to be fully representative

Question 21

Why is measuring a developing countries unemployment even more difficult?

Answer 21

No social secuirty system means unemployed workers have no incentive to register as being unemployed
People cannot find jobs they are qualified for and take second-choice jobs: this is underemployment

Question 22

What is underemployment?

Answer 22

People who are unable to work as many hours as they want or are overqualified for their jobs

Question 23

What is the formula for unemployment rate?

Answer 23

Unemployed///Economically Active