Inflation And Unemployment

Question 1

Inflation

Answer 1

General and sustained or persistent rise in the level of prices of goods and services

Question 2

Costs of inflation

Answer 2

1. Encourages consumers to purchase goods sooner
2. Low inflation makes it more appealing to borrow money as the rate of interest is low
3. If this remains consistent over a long period of time Unions will reduce demands for higher wages
4. Exports remain competitive
5. Reduces real income of a person
6. Lenders / savers of money badly affected, borrowers benefit and loaners will lose out
7. Reduces competitiveness of exports which reduces economic activity in a country with higher inflation
8. Creates economic uncertainty

Question 3

Inflation causes

Answer 3

1. Demand pull inflation - caused by increase in AD causing market prices to rise if forms are unable to increase supply of g/s at the same rate of demand
   Cure: financing AD: consumers/firms may borrow more from banking and/or. Both ways increase money in an economy
2. Cost push - increases in the costs of production reduce profits margins for firms. As a result firms increase prices
3. Imported inflation - rising prices in one country may be exported to other counties through international trade
4. Inflation imposes additional costs on firms these are called menu costs (businesses have to change price lists, labels )

Question 4

Controlling inflation

Answer 4

1. Point mentioned of demand pull
2. Can’t be controlled if wages are increasing at a faster age than GDP
3. Controlling inflation over the long run necessitates an increase in AS increasing this reduces pressure on prices
4. Keeping strong currency controls imported inflation keeping inmost prices low

Question 5

What is unemployment ?

Answer 5

Percentage of people in the work force that are without work and recorded as unemployed

Question 6

Types of unemployment

Answer 6

1. Voluntary unemployment - those who won’t work out of choice can be motivated by minimum wage
2. Frictional unemployment - there will always be come unemployment in an economy when workers leave one job and spend time looking for another.
3. Seasonal unemployment - consumer demand for goods and services is seasonal. Person working in a summer resort will not have a job in winter. Therefore, back to back jobs are created like winter and summer resorts.
4. Structural unemployment-arises in changes in the structure of the economy like industries closing due to decrease in demand for what they produce
5. technological unemployment - robots and computers replacing human workers
6. Cyclical unemployment - economic recession . Not enough demand to purchase products produced by economy . Hence firsts produce less