Theme 2 Inflation + Unemployment Flashcards

1
Q

Real wage inflexibility

A

Reducing wages to fix disequilibrium in the labour market solving unemplpyment

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2
Q

Technological unemployment

A

Machines replace workers

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3
Q

Regional unemployment

A

Industries are concentrated in some areas so have greater dependence on an industry which if collapses causing high rates of unemployment in that region

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4
Q

Voluntary unemployment

A

Chose to be economically inactive as make more money on benefits

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5
Q

Economically inactive

A

People who aren’t looking for work and aren’t in work

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6
Q

Underemployment

A

Working minimal hours means unemployed larger proportion of the time distorting unemployment figures

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7
Q

Unemployment in the economy represnts

A

A loss of potential output

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8
Q

The opportunity cost of each unemployed person is their

A

Foregone cost

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9
Q

Increased costs of benefits is considered a

A

Transfer of payment

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10
Q

Two impacts of unemployment on firms

A

Easier employment conditions: lower production costs, lower wage demand thus lower wages and higher profits

Falling demand: less consumers so less profit

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11
Q

Two impacts of unemployment on consumers

A

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

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12
Q

Three costs of unemployed

A

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)

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13
Q

Cyclical unemployment (low demand)

A
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
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14
Q

Inflation costs to consumers

A

Real wages fall if nominal wages stay that same and price levels increase

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15
Q

Inflation costs to firms

A

Menu and shoe leather costs

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16
Q

Inflation costs to government

A

Inflation reduces the real burden of national debt

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17
Q

Unemployment rate and an advantage of it

A

1.6million/economically active x 100

Can compare against other countries with different populations

18
Q

Job seekers allowance rate is

A

Roughly £60-£70 depending on age

19
Q

Advantages of the claimant count

A

Includes everybody
Cheaper and quicker to collect info
More details collected

20
Q

Cons of claimant count

A

Not all countries do it whereas ILO is used in all countries

21
Q

ILO pro

A

Most countries use it

22
Q

ILO con

A

Only a sample

23
Q

The ILO count is taken from the

A

Labour force survey

24
Q

Cost push inflation graph

A

AS AD graph with AS2 to the left

25
Q

Factors causing cost-push inflation

A

Increase in raw materials - due to the rise in world commodity prices increases in component cost causes negative shift in AS

Rising labour costs - negative shift in AS

Higher components costs from devaluation of the pound or increased supply of oil

26
Q

M X V =

A

P x Y

27
Q

What happens if only V is constant and not Y

A

Firms may increase Y real output if high levels of unemployment, recession, poor economic growth so there is no inflation

28
Q

Measures of inflation

A

CPI

RPI

29
Q

Why are items in the cpi weighted

A

To show the correct amount of income spent on an item as it is bought more often

30
Q

How to calculate percentage change in inflation

A

New price - old price
/old price
X100

31
Q

Geometric mean calculation

A

all numbers multiplied together then rooted by amount of numbers

32
Q

Arithmetic mean

A

Add all numbers then divide by amount of numbers

33
Q

G<a></a>

A

Rpi>Cpi

34
Q

Rpi vs cpi

A

Rpi includes house prices, spending when abroad, council tax
Weights from ONS living cost and food survey

Cpi includes income tax and foreign students tuition fees and weights from National accounts data

35
Q

Cons of RPI

A

Uses less accurate arithmetic mean

Not the standard measure

36
Q

Cons of cpi

A

Doesn’t include house prices

37
Q

Reasons for demand pull inflation (AS AD graph with AD2 right)

A

Depreciation of exchange rate - increases import price and reduces export price

Reduction in income tax
Rise in house prices

38
Q

Stages of calculating the CPI

A

Price survey measuring then general price level of a representative basket of goods and services (from 20000 shops and 70000 locations - collected at beginning of month) using the living costs and food survey
Relative weightings are assigned to the different items included within the basket of goods and services based on the relative importance of household spending
Prices are measured and recorded on a monthly basis
Recorded priced are aggregated into an index that provided the general price level
Calculation of inflation from indexed figures

39
Q

Why do the gov have low rates of inflation

A
  • prevents fall in real income as nominal wages stay constant and price levels increase
  • hinder international trading competitiveness
  • consumer utility
  • but doesn’t reduce real burden of national debt
40
Q

What is inflation target

A

Target set by the government for the bank of England to meet of a 2% inflation rate which is symmetrical by 1%. It is adjusted via quantitative easing and changing interest rates