Unit 2 Economics

Unit 2 revision.

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  • Created by: A.Patel
  • Created on: 19-05-12 14:56

Macroecnoomic objectives

- Steady economic growth

- Low and stable inflation

- Low levels of unemployment

- Stable balance of payments

- Reduce the natiional debt

- Reduce inequality

- Reduce the levels of pollution

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Inflation

DEF - The persistent rise in the price level

NOMINAL VALUES- do not account for inflation

REAL VALUES- take inflation into account

MEASURES - CPI (consumer price index) and RPI (retail price index)

Both these measure are calulated using a food expenditure survey which involves a basket of goods make up of about 650 goods. After asking a fraction of the households about how much they spend onn all good they are given a wieghting and compared to a base year.

It is important to remember that the difference between the two meaasures is that RPI includes household expenditures, e.g. mortgage repayments etc.

COSTS of high inflation - Menu costs, peole on fixed incomes, fiscal drag, shoe-leather costs.

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Unemployment

DEF - pecentage of individuals who are able and willing to work but are not employed

MEASURES - Claimant account and ILO(Labour force survey)

Claimant account uses the number on JSA to estimate the number of umemployed workers. the problems with this measure is that, not everyone recieves JSA, for instance those on maternity leave or those under the age of 18.

ILO is a survey which asks individuals whether they have been employed within the last four weeks are actively looking for jobs and are williing to start in the following two weeks.

TYPE - Frictional (moving between jobs), Structural (jobs are in decline), Cyclical (low demand due to recession), Seasonal (low demand during seasons eg ice-cream)

PROBLEMS - individuals have less money, lead to crime, more government spending on welfare (transfer payment)

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Policies

FISCAL POLICY - Uses government spending, borrowing and taxes to shift the aggregate demand curve

MONETRAY POLICY - Use of  interest rates and money supply to effect the aggregate demand curve

SUPPLY SIDE POLICY - Uses various policies to increase the productivity potential in an economy. Including, privatisation, deregulation, education and training and cutting benefits. However there are using time lags involved with these policies.

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