Macroeconomics Booklet 3 Flashcards
What does unemployment mean?
When they do not have a job but are actively seeking work (in the last 4 weeks) and are available to start work within the next 2 weeks. It is a stock variable.
What is the claimant count?
The number of people currently ‘signing off’ to claim jobseeker allowance.
What are positives of this?
Easy to collect the data.
What are some negatives of this?
Non-strict definition of unemployed.
People with jobs that isn’t sufficient.
What is the LFS?
Labour Force Survey - 60000 households identifying the number of people out of work, currently searching and willing to start work in the next 2 weeks.
What are some positives of LFS?
- Extrapolation - gather data and predict
What are some negatives of LFS?
- Bounded rationality
- Social norms
Why will the Claimant count and LFS may not be accurate?
Claiming count - non-strict definition of unemployed.
LFS - people could be too embarrassed to claim benefits due to social norms.
Who are people that are economically inactive?
1) Retired
2) Disabled
3) Prisoners
4) Housewife
What is underemployment?
People who are employed but don’t work as many hours as they would like or their skills aren’t being used efficiently.
What is frictional or ‘job search’ unemployment?
Healthy unemployment - People between jobs. An example is recent graduation.
What is seasonal unemployment?
Healthy unemployment - demand for certain types of labour only exists at certain times of the year. One example is holiday reps.
What is structural unemployment?
More problematic. Caused by a change of structure in the economy. One example is minors strikes.
What is technological unemployment?
Worker replaced by machinery. One example is self-checkout.
What is cyclical, Keynesian or demand-deficient?
Caused by a lack of AD + falls durning recovery. One example is COVID - 19.
What is classical or real-wage unemployment?
Caused by wages being too high for the labour market to clear.
What is geographical immobility of labour?
Workers cannot just relocate to where there is demand for labour.
What is occupational immobility of labour?
Workers cannot switch to another job because of the lack of transferable skills.
What is the name is an excess of supply of labour known as?
Unemployment.
What are some reasons of why labour may be geographically immobile?
1) Need to be near dependents
2) Children in settled schools
3) Differences in housing
4) Cultural/ religious ties.
What is the cost of unemployment?
1) Lower tax receipts for government.
2) Crime and drug abuse.
3) Stress, low self esteem and mental heart problems.
What is inflation?
A sustained increase in the general level of prices.
What is deflation?
A sustained decrease in the general level of prices.
What is Disinflation?
A fall in the rate of inflation.
What is core inflation?
Inflation measured without the most volatile prices (e.g. energy and food)
What is hyperinflation?
Very high inflation, typically in excess.
What is anticipated inflation?
Inflation that economic agents expect + factor into their decisions.
What is unanticipated inflation?
Inflation that is higher than economic agents expectations.
What is demand-pull inflation?
Average prices experience a sustained increase because of an increase in aggregate demand.
What is cost-push inflation?
Effects the supply-side. That leads to rising costs.
What are sources of demand-pull inflation?
- Increase in incomes/ consumer confidence
- Falling interest rates
- Increased government spending
- Increased Exports
What are sources of cost-push inflation?
- Rising wages
- Rising indirect taxes
- Rising in energy/ fuel
- Increase in raw material prices
What does a demand-pull graph look like?
Keynesian LRAS - Aggregate demand shifting right wards from bottom to top of small curve.
What does a cost-push graph look like?
SRAS - supply shift to the left with normal AD curve at equilibrium
What is the wage price spiral?
- Workers standard of living drops due to inflation
- The negotiate a price rise to be able to afford more goods
- Firms have to pay more for labour, total costs rise
- Firms rise prices to maintain profit - meaning workers standard of living drops
What are the cost of inflation?
- Psychological cost - makes people feel worse
- Menu costs - cost of updating things with new prices
- International competitiveness- countries goods become more expensive - effecting harming exports
What are the benefits of inflation?
- Allows prices to adjust
- Deflation could be taking place
- Firms can overcome the sticky-downwards prices
What is benign deflation?
More beneficial. Caused my falling prices - acts as a boost to real incomes and can promote economic growth.
What is Malign deflation?
Caused by a fall in aggregate demand. Real national output and income fall. Economic Agents prolong purchases.
What does benign deflation look like?
SRAS shifts to the right - almost horizontal . Normal AD curve.
What does malign deflation?
AD shifts to the left . SRAS almost horizontal.
What is the acronyms for the strengthening in pound of exchange rates?
S - Strengthening
P - Pound
I - Imports
C - Cheaper
E - Exports
D - Dearer - more expensive
What is the acronym for the weakening in pound of exchange rates?
W - Weakening
P - Pounds
I - Imports
D - Dearer - more expensive
E - Exports
C - Cheaper
Who buys sterling?
- Foreign firms importing from the UK
- Foreign tourists coming to UK
- UK tourists returning home
- Currency speculators
- Central banks
Who sells sterling?
- UK firms importing from abroad
- Uk tourists travelling abroad
- Central banks
- Foreign tourists returning home
- Currency speculators
What is a fiscal policy?
Use of taxation/ government spending to manage economy.
What is monetary policy?
Use of interest rates and manipulation of the money supply to manage the economy.
Expansionary policy?
Loosening of fiscal or monetary policy - Not strict with spending. Increased aggregate demand and real output produced to increase.
Contractionary policy?
Tightening of the monetary or fiscal policy - Strict with spending. Reduce AD to reduce size of an increase in AD
What are pro-cyclical policies?
Work with cyclical tendencies, prolong economic boom.
What are counter-cyclical policies?
Work against cyclical tendencies, prevent an economy going further into a recession or taking heat out of economic boom
What are direct taxes? And examples?
Paid directly by an individual.
Income tax, National insurance, Council tax.
What are indirect taxes? And examples?
Levied on good and services.
VAT, Vehicle excise duty, Business rates
Favour of indirect taxes over direct?
- Reduce market failure
- Don’t disincentivise work
- Can be changed more easily
Favour of direct taxes over indirect?
- IT are inflationary
- IT are more progressive whereas DT are regressive
- IT may lead to black markets
What does indirect tax shift?
Shifts the SRAS
What does direct tax shift?
Shift AD
Income tax?
First £12,570 a persons earns has 0% income tax.
