Macroeconomic Objectives Flashcards
What is economic growth?
An increase in real GDP, meaning more goods and services are being produced in an economy.
What causes long-term economic growth?
Improvements in the quantity/quality of factors of production → shifts LRAS right.
What causes short-term economic growth?
An increase in any component of AD: C, I, G, or (X - M).
What is the natural rate of unemployment (NRU)?
The unemployment that exists even when the economy is at full employment – includes frictional, structural, and seasonal unemployment.
What is underemployment?
When workers are working part-time or in roles below their skill level.
What is hidden unemployment?
People who’ve given up looking for work and are no longer counted in statistics.
Types of unemployment?
structural, cyclical, frictional, and seasonal.
What is inflation?
A sustained increase in the average price level.
What is disinflation?
Prices are still rising but at a slower rate.
What is deflation?
A decrease in the average price level.
What are the causes of inflation?
Demand-pull (excess AD) and cost-push (rising production costs).
How is inflation measured?
Using the Consumer Price Index (CPI) – a weighted basket of goods.
Limitations of CPI?
Doesn’t reflect individual spending habits, regional differences, or quality changes.
What is sustainable government debt?
Debt levels that can be repaid without harming future economic stability.
What are common macroeconomic trade-offs?
Growth vs. Inflation
Growth vs. Environmental Sustainability
Growth vs. Income Inequality
Low Unemployment vs. Low Inflation
What’s the costs of high national debt?
- Debt servicing costs
- Credit rating
- Impacts on future taxation and government spending
What are debt servicing costs?
Governments have to pay back a lot of interest rates on the loans→ less money for investments.
What is credit rating?
A rating of a borrower’s ability to repay a loan. This rating tends to be lower for countries that already have more debt, making it harder to get better loans later.
What is structural unemployment?
Caused by a mismatch between workers’ skills and the skills needed for available jobs.
What is frictional unemployment?
Occurs when people are temporarily between jobs or entering the workforce.
What is cyclical unemployment?
Unemployment due to recessions.
What is seasonal unemployment?
Unemployment that results from changes in demand of the job at different times of the year.
