macroeconomic objectives, inflation, unemployment Flashcards
total expenditure or demand in macroeconomy formula
consumer expenditure + investment expenditure + public sector expenditure +
net exports (exports-imports)
list 2 macroeconomic aims some govs may have
to reduce poverty and inequalities in income and wealth
to reduce pollution and waste, protect the natural environment and therefore encourage more sustainable econ growth
what is aggregate demand
total demand for goods and services within a particular market
what is aggregate supply
the total supply of goods and services available to a particular market from producers
what is inflation
a general and sustained rise in the price levels of goods and services
what is hyperinflation
runaway inflation during which prices rise at phenomenal rates and money becomes almost worthless
cpi formula
WAP yr 1/WAP base yr x 100
inflation from base year formula
cpi year - cpi base year
inflation between years formula
CPI Year 2 - CPI Year 1/CPI Year 1 x 100
what is the main cause of inflation
if the money supply increases at a faster rate than the aggregate supply of goods and services then the glp will rise
what r the 2 types of inflation
demand pull inflation, cost push inflation
what is demand pull inflation
caused by aggregate demand rising faster than the aggregate supply of goods and services
what is cost push inflation
caused by rising wages and other production costs, firms will raise their prices to cover these additional costs
what is imported inflation
inflation caused by rise in import prices
when can import prices rise
a fall in the exchange rate of the importing country
when is demand pull inflation most likely
when there is full employment of resources and when aggregate supply is inelastic
list 2 benefits of low and stable price inflation
encourages consumers to buy goods and services sooner rather than later
reduces the real cost of loan repayments
what is stagflation
an economic situation when unemployment and inflation r both high and/or rising
what is disinflation
slowdown in the rate at which prices r rising in general
what is deflation
involves a continuous decline in the general level of prices in an economy
what is malign deflation
when falling product prices become widespread and prolonged due to a slump in aggregate demand
what does the labor force participation rate measure
the percentage of the population of working age that is economically active ie either in work or looking for work
what is unemplyoment
unemployment occurs when a person who is part of labor force and who is actively searching for employment, is unable to find work
what is unemployment often used as
measure of the health of the economy
unemployment rate formula
number unemployed/labor force * 100
what r the 4 types of unemployment
frictional, seasonal, cyclical, structural
what is frictional unemployment
short lived unemployment as ppl change jobs
what is seasonal unemployment
temp. unemployment because some production and consumer demand is seasonal
what is cyclical unemployment
prolonged widespread unemployment during an economic recession due to falling and depressed AD
what is structural unemployment
long lived unemployment caused by industrial decline
list 2 types of labor immobility
occupational
geographic
what is occupational immobility
inability to move to a new occupation because a worker lacks transferable skills
what is geographic immobility
inability to move location because of family ties and commitments or regional differences in house prices make it unaffordable
list 2 personal costs of unemployment
- loss of income
- possible loss of self esteem, leading to depression, health and marriage problems
list 2 governmental costs of unemployment
- loss of income tax revenue
- higher public spending on unemployment and welfare benefits
list 2 economical costs of unemployment
- output is lower than what it could be
- taxes may have to rise to pay for increased welfare payments.
what r some positive consequences that benign deflation can have (2)
reduced the cost of goods such as mobile phones, cars and clothing over time in many countries.
it increases purchasing power and consumers
causes of benign deflation (4)
increased competition, productivity, supply and technology
