Unit 4(4.6-4.8) Flashcards
what is employment
the number of people in work
what is pattern of employment
the type of jobs that people do
what are some changes in employment patterns
changes in the number of women
changes to the age at which people retire
shifts between private and public sector
what is labour force
the population that can work(all people of working age)
what is the dependent population
people who are not in the labour force and depend on the labour force to supply them with goods
what is full employment
situation where entire labour force is employed
what is level of unemployment
measures the number of people who are willing and able to work but are not employed at the time
what is unemployment rate and formula
the number of people employed as a total number of the workforce
number of people unemployed/number of people in the workforce X 100
what can unemployment be measured by
the claimant count(number of people entitled to unemployment benefits)
labour force survey
what is seasonal unemployment
people that are unemployed at certain times of the year(farming)
what is frictional unemployment
when people are between jobs
doesnt necessarily have to be a concern
what is structural unemployment
due to long term change in the structure of the economy, people are unable to find a new job due to geographical or occupational mobility
what is cyclical unemployment
there is a lack of aggregate demand in the economy
with less demand for products, firms cut their production and labour
why is it bad for people to be unemployed
they lose their working skill and can cause the standard of living to fall
they can be demotivated
can lead to poverty and rise in crime rates
purchasing power will fall
why is unemployment bad for firms
they will have to retrain workers
pay redundancy payments
they are left with spare machinery leading to higher average costs
why is unemployment bad for the country
people will rely on unemployment benefits and the burden on taxpayers will rise
public expenditure will have to be cut down meaning public goods cannot be provided
the economy will be inefficient on the PPC
how will demand side policies reduce unemployment
reduce cyclical unemployment by increasing aggregate demand
how will supply side policies reduce unemployment
they will reduce structural and frictional unemployment
what are expansionary policies to increase demand
cutting taxes and increasing government spending to boost demand and keep employment high
however there is a time lag and they may not work
how does depreciating exchange rate reduce unemployment
causes exports to be cheaper which increases demand and increases production and employment
how does controlling inflation reduce unemployment
if the government controls incflation it will reduce firm costs and increase employment
how does cutting unemployment benefits reduce unemployment
gives an incentive for people to find work
however goes against welfare principle of the government
how does removing labour market regulations
makes it easier to hire and fire workers which improves labour market flexibility
but this can cause temporary unemployment and greater job insecurity
how does training workers reduce unemployment
eliminates structural unemployment and improves occupational mobility
requires large amounts of money and is only seen long term
how does promoting industry in unemployed areas reduce unemployment
governments provide subsidies when factories are set up in certain areas
what is economic growth
the increase in the amount of good and services produced over a period of time
what is gross domestic product(GDP)
the total market value of all final goods and services provided by the factors of production in a period of time
what is nominal GDP
the value of output produced in an economy without any adjustments for inflation
what is Real GDP
the value of output produced in an economy that is adjusted for inflation
what is GDP per head/capita
measures the average output or income of each person in an economy
provides a measure of the living standards in a country
what does an increase in real GDP indicate
it indicates economic growth since goods have increased and economies are utilizing their resources properly
causes of economic growth
discovery of more natural resources
investment in new capital and infrastructure
technical progress
reallocation of existing resources
benefit of economic growth
greater availability of goods and services to satisfy consumer wants and needs
increased employment
living standards may improve
increased sale, profit
investment in capital goods will increase(Beneficial for long term)
low and stable inflation if growth in supply meets demand
increased tax revenue to be used for public goods and services
drawbacks of economic growth
increase in capital may replace labour causing an increase in unemployment
resources may get depleted over time
negative externalities(pollution,global warming) are increased
if demand is more than output, inflation may be caused
widening income inequalities because may not be evenly distributed
what do governments aim for in economic growth
sustainable economic growth which can be maintained without creating significant problems
what is recession
when there is no economic growth and read GDP is falling
happens when there is rapid economic growth that causes high inflation
what are the causes of recession
banks reduce lending
rise in interest rates(reduces demand)
fall in real wages(income doesnt increase at same rate as inflation)
fall in consumer/business confidence
cut in government spending
trade wars
supply side shocks
consequences of recession
firms go out of business
unemployment(cuts in production)
fall in income(cuts in production)
rise in poverty and inequality
fall in asset prices(stock market crashes and shares lose value)
higher budget deficit(fall in tax revenue)
economy moves inwards on PPC
what policies are used to promote demand for economic growth
expansionary fiscal and monetary policies
what do supply side polices do to promote economic growth
implemented if factors of production are affecting the economy
why are demand side polices dangerous in promoting economic growth
policies that increase the rate of demand can lead to a recession if not controlled properly
why are supply side policies less effective in promoting economic growth
take time to have an effect
wont solve the fundamental problem of deficiency of aggregate demand
what is inflation
the general and sustained increase in the level of prices of goods and services over a period of time
measured with the Consumer Price Index
how is the CPI calculated
take weight of goods and multiply with base year price
take weight and multiply with next year
new year - base year = inflation
what is the CPI
the selection of goods and services normally purchased by a household
the prices are then monitored
what is demand pull inflation
inflation caused by an increase in aggregate demand
price rises since aggregate demand is larger than aggregate supply
what is cost push inflation
caused by an average increase in cost of production causing prices of goods to increase
supply curve will shift left
consequences of inflation
lower purchasing power
exports are less internationally competitive
inflation will cause more inflation(cost of living goes up causing workers to demand higher wages causing cost push inflation)
fixed income groups, lenders and savers will lose(lenders who recieve the money after inflation has lost value on their money)
how does contractionary monetary policy control inflation
interest rates are raised to reduce spending and investing to reduce demand
has a time lag
how does contractionary fiscal policy control inflation
raising taxes to reduce income and demand
cutting down of government spending
unpopular policy and only used in severe situations
how do supply side policies control demand
allows supply to catch up to demand
done through deregulation and incentives to reduce average costs of production
how does exchange rate policy control inflation
appreciating domestic currency can lower import prices which reduces cost push inflation
export also becomes expensive whcih lowers export demand
what is deflation
a general fall in the price level
causes of deflation
aggregate supply exceeding aggregate demand(excess output causing prices to fall)
demand falls
labour productivity rises(higher output leads to lower average costs)
technological advance(reduced cost of production)
consequences of deflation
lower prices can discourage production and cause unemployment
investors are discourages to invest
can cause recessions
tax revenue of government will fall
borrowers will lose money since debt becomes higher
increase real debt burden of the government
how does expansionary monetary policy control deflation
cutting interest rates to encourage more spending and investing
how does expansionary fiscal policy control deflation
increase government spending to increase demand
cutting taxes
