macroeconomics aims & issues Flashcards
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explain structural unemployment and its factors
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why is avoidance of a large and persistent BOT surplus favourable?
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why is avoidance of a large and persistent BOT deficit favourable?
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why is deflation bad?
1. expectation of falling prices --> consumers delay purchases --> further fall in AD --> spiral
2. savings worth less, increase real burden of debts
3. nominal i/r cannot fall below zero --> reduce saver's bank balances every month --> prompt withdrawal deposits --> spiral
4. if i/r cannot fall far enough to boost demand and perk up prices, demand weakens further --> deflation trap
5. increases rigidity in the labour market (workers resistant to wage cuts in cash terms, inflation lets firms cut wages by freezing pay in nominal terms)
