Unemployment and Current Account Balance Flashcards
Define ‘unemployment’.
When people are actively seeking work but unable to find it
In what 2 ways is unemployment measured?
Labour Force Survey (LFS)
Claimant Count - number of people who’ve claimed unemployment benefits
What are the 5 types of unemployment?
Cyclical Structural Frictional Seasonal Voluntary
What is cyclical unemployment?
Unemployment linked to the economy cycle that occurs due to low levels of AD in the economy during a recession/depression
What is the issue with cyclical unemployment?
Dependent on the cycle - unless economic growth occurs, it is hard for it to be reduced
What is structural unemployment?
Unemployment that occurs due to a change in the structure of an economy
What are the 3 types of structural unemployment?
Sectoral
Technological
Regional
What is sectoral unemployment?
Structural employment that occurs due to the decline of a particular industry
What is technological unemployment?
Structural unemployment that occurs due to the replacement of certain jobs by automated machinery
What is regional unemployment?
Structural unemployment that occurs in a particular region of a country
What is the issue with structural unemployment?
Workers need to be adaptive and perhaps need to retrain or relocate
What is frictional unemployment?
Short-term unemployment that occurs as people transition from one job to another
What is seasonal unemployment?
Temporary unemployment due to workers only being required during a certain season
What is voluntary unemployment?
Unemployment from people choosing not to work due to the idea of work or the level of wages
What are the 5 effects on unemployment on individuals?
A fall in income
Lower standard of living
Loss of homes - unable to pay mortgage
Family breakups
Lower self-esteem
What are the 4 effects on unemployment on businesses?
Redundancy packages paid to laid-off employees
Demotivation of workers
Spare capacity - unused machinery and desks
Fall in demand - especially for luxury goods
What are the 5 effects of unemployment on the economy?
Lower national income - people don’t contribute to the GDP
Wastage of resources
Fall in tax revenues
Increased government spending
Increase in taxes and debt in the long-run
What are the 4 effects of unemployment on the local community?
Fall in community spirits
Crime rate increases
Businesses start to struggle - bankruptcy and foreclosure
Community rends to look shabby - areas look run-down
Define ‘balance of payments’.
A statistical statement that records an economy’s transactions with other countries relating to international trade
Define ‘exports’.
Goods or services produced in one country that are sold in another country
Define ‘imports’.
Goods and services brought in from abroad for sale
What does the current account show?
The exports and imports between countries over a period of time, usually a year
What are the 3 reasons a country might have a current account deficit?
Income - high domestic income = greater ability to spend on foreign imports
Price - domestically produced goods are more expensive
Non-price - Exports may use inferior technology
What are the 2 advantages and 3 disadvantages of a current account deficit?
Pros:
Less demand-pull inflation
Financial account surplus
Cons:
Less economic growth
Unemployment increasing
Greater government spending to support unemployment
What are the 6 possible causes of a current account surplus?
Weak domestic income growth causing lower demand for imports
Strong growth in foreign countries - higher demand for exports
Weak exchange rate
Exports more competitive than imports quality-wise
Exports more price competitive than imports
Lower rates of domestic inflation
What are the 8 steps in the chain of reasoning for a current account surplus?
X > M Injections > Leakages AD↑ ((X-M)↑) Economic growth ↑ (export-led growth) Demand-pull inflation pressure More jobs - labour is derived demand Unemployment ↓ Increased incomes
Define ‘exchange rate’.
Value of one currency in terms of another
What is the effect of a strong exchange rate on the current account?
Strong Pound Imports Cheaper Exports Dearer
Worse for net trade - can cause current account deficit
What is the effect of a weak exchange rate on the current account?
Weak Pound Imports Dearer Exports Cheaper
Better for foreign trade - can cause current account surplus
What are the 7 possible solutions to a current account deficit?
Increase income taxes to reduce domestic consumption
Subsidise domestic firms to increase competition
Weaken currency to make exports more attractive
Reduce costs of production to increase price competitiveness
Increase tariffs
R&D to improve quality of goods
Improve labour productivity
