Section 10: Government Economic Policy Objectives Flashcards
What is frictional unemployment?
Short-term unemployment when people are between jobs.
What is geographical immobility?
When workers are unable to leave a region which has high unemployment to go to another region where there are jobs. E.g from financial struggles or family ties.
What is seasonal unemployment?
When people are unemployed at particular times of the year due to seasonal changes in demand.
What is structural unemployment?
Long-term unemployment that occurs when the skills and location of the unemployed workers do not match the jobs available.
Define unemployment.
The number of people who are willing and able to work but cannot find a job.
What is occupational immobility?
Where some occupations decline over time, but workers in these occupations don’t have the skills required to be able to do the jobs that are available.
Why would governments want full employment?
To maximise production and raise living standards in a country.
What is cyclical unemployment ?
Occurs when an economy goes into a recession and people cannot find work because aggregate demand is too low.
What are the costs and consequences of unemployment?
-Lower disposable income = less consumption = lower AD (and firms’ profit).
-Less income tax and less indirect tax from reduced consumption. Government money spent on benefits
-Higher crime rate in areas of high unemployment, reduced income also causes health problems.
-Outdated skills and training for those unemployed for a while causing reduction in employability.
What is real wage unemployment?
Unemployment that results when the wage rate in some labour markets is set above the equilibrium wage rate
What is the balance of payments?
A record of a country’s financial transactions with the rest of the world.
What is a deficit on the current account of the balance of payments?
When the imports of goods and services plus outflows of investment income and transfers are greater than exports of goods and services plus inflows of investment income and
transfers.
What is a surplus on the current account of the balance of payments?
When the exports of goods and services plus inflows of investment income and transfers are greater than imports of goods and services plus outflows of investment income and transfers.
What are the three accounts in the UK balance of payments?
-Current account
-Financial account
-Capital account
What are the four sections of the current account?
Trade in goods, Trade in services, Investment and employment income (primary income), Transfers (secondary income)
What is in trade in goods section of current account?
Measures imports/exports of visible goods.
What is in the trade in services section of current account.
Measures imports/exports of services such as insurance or tourism.
What is in the investment and employment (primary) income section of current account?
This covers flows of money in and out of a country resulting from employment or earlier investment. e.g:
- Deposits in foreign banks receive interest payments.
- Shares bought in foreign firms paying dividends to UK accounts (not shares themselves)
-Salaries paid to UK residents working abroad.
What is in the transfers (secondary income) section of current account.
Transfers are movements of money between countries which aren’t paying for goods and services and aren’t the result of investment.
e.g payments to family members abroad
What are the causes of a balance of payments deficit?
-High levels of consumer spending (low savings rate)
-Struggles with competing internationally
-Dealing with external shocks
What are the causes of a balance of payments surplus?
-Recession, if country is struggling to sell domestically they’ll focus on competing in international markets.
-Domestic currency has a low value (cheap exports, expensive imports)
-High interest rates = more saving and less spending.
What are the consequences of a balance of payments deficit?
-Indication of uncompetitive economy
-Fall in value of currency, increasing import prices in at least short run, can lead to inflation.
-Domestic job losses, more imports reduces demand for domestic production.
What are consequences of a balance of payments surplus?
-Stagnation
-Indication of over reliance on exports.
-Surplus by undervalued currency creates inflationary pressures
What may a government do to correct balance of payment imbalances?
For deficit: (don’t need all)
-Policies to reduce price of domestic goods.
-Imposing restrictions on imports.
-Devalue or depreciate currency (cheaper exports).
Surplus
For surplus:
-Raise value of currency (reduce demands for exports and increase demand for imports), limitations include reduction in output and unemployment increase.
