Theme 2 Inflation + Unemployment Flashcards
Real wage inflexibility
Reducing wages to fix disequilibrium in the labour market solving unemplpyment
Technological unemployment
Machines replace workers
Regional unemployment
Industries are concentrated in some areas so have greater dependence on an industry which if collapses causing high rates of unemployment in that region
Voluntary unemployment
Chose to be economically inactive as make more money on benefits
Economically inactive
People who aren’t looking for work and aren’t in work
Underemployment
Working minimal hours means unemployed larger proportion of the time distorting unemployment figures
Unemployment in the economy represnts
A loss of potential output
The opportunity cost of each unemployed person is their
Foregone cost
Increased costs of benefits is considered a
Transfer of payment
Two impacts of unemployment on firms
Easier employment conditions: lower production costs, lower wage demand thus lower wages and higher profits
Falling demand: less consumers so less profit
Two impacts of unemployment on consumers
Lower prices as low demand
More inferior goods and less normal goods as lower income
Lower incomes cause a fall in consumer confidence and job security so demand for goods fall
Three costs of unemployed
Mental health problems (depression–NHS)
Standard of living (disposable income)
Social stigma/perception (lazy, idle)
Falling skill levels (cost-push inflation graph causing a decrease in potential real output)
Cyclical unemployment (low demand)
Demand deficiency Aggregate demand lowers Recession Fewer employed Demand-pull inflation graph Real output falls in recession Negative shift in demand for labour Supply and demand curve D2 is constrained by the decrease in real output so fewer workers are employed by firms
Inflation costs to consumers
Real wages fall if nominal wages stay that same and price levels increase
Inflation costs to firms
Menu and shoe leather costs
Inflation costs to government
Inflation reduces the real burden of national debt