A2 Macro Evaluation

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Unemployment

represented by:

  • AD inwards, AS inward 
  • plotting actual GDP against trend GDP
  • movement inside PPF

Consequences?

People unemployed

  • loss of income
  • demotivation
  • mental health down
  • skill degradation

Society

  • poverty
  • homelessness
  • crime levels

The Economy

  • reduced output
  • increased welfare costs
  • reduced tax revenue
  • cost of social problems

what type of unemployment as this effects what consequences come about and also what policy is needed to restore employment

  • cyclical/demand deficient - demand side SR temporary
  • seasonal/frictional - supply side SR temporary 
  • structural - supply side LR more permanent 
    • reduces the productive capacity

it is difficult to determine the type of unemployment as there are overlaps, making it hard to know how to correct it. e.g demadn deficient can turn to structural if continued longer as the persistant fall in demand creates higher structural unemployment 

lots of dif behaviour patterns which surpress the unemployment figures:

  • hoarding - firms help unemployment numbers by retaining staff in downturn
  • under-employed - workers help unemployment numbers by working part time
  • over-qualified - workers help unemployment numbers as have taken less skilled work
  • discouraged or marginally attached - workers help unemployment numbers by not seeking employment 

data is all based on surveys which only a small number of people are questionned

therefore overall, the figures are not representitive

Distribution Issues:

  • countries? - impact on competitiveness?
  • regions? - impact on regional competitiveness?
  • age groups?- youth unemployment?
  • gender? - gender pay gap?
  • ethnic groups? - impact on work diversity?

Effectiveness of the policies?

  • demand side policies
    • policy depends on assumption of ceteris paribus
    • depend on consumer and business confidence  e.g taxes low, spending low cos confidence?
    • depends on how much spare capacity, might only become inflationary when at full employment i.e not affective at reducing the natural rate of unemployment
    • higher employment does not always guarentee more hours worked and more output as depends on contracts of the workers
    • alse subject to time lags that come from the policies being implemented as by the time policies come into effect, the economys position may have changed
    • if fuelled by govt spending - crowding out!!!! inwards LRAS
  • supply side policies
    • subject to high opp cost as govt have to reduce spending from other areas of economy - harmful to productivity 
    • time lags (more sig here than demand side) as ultimately aim for LRAS shift
    • unfair burden of people who lose unemployment benefits causing worse standard of living
    • worsens income inequality if above happens
    • no guarentee policy will be effective as all depends on ability and incentive of workers to learn the new skills

Inflation

important to have low and consistent inflation as inflation can be too low or too high which discouraged economic activity, whilst modest consistent  steady inflation creates perfect economimc conditions for consumpciton, investment and general increase in econ activity

how can govt control inflation rate?

  • quantity thoery of money
  • mv=pt 
    • where m = money supply
    • v = velocity of citrculation i.e GDP/M4
    • p = av price of transactions
    • t = total number of transactions
  • by imposing assumption that…

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