Macroeconomic Objectives 1- EG, Inflation, Unemployment
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- Created by: tsalomroberts
- Created on: 14-02-21 17:43
What is Economic Growth
The increase in the level output by a nation
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How is EG measured
gross domestic product (GDP). GDP is the market value (total worth) of all final goods and services
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Limitations of GDP as a measure of growth
Inflation, Population changes, Statistical Errors, Value of Home Produced goods, Hidden Economy, GDP and Living Standards, External Costs
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What are the four different phases of the Economic Cycle
Boom
Downturn
Recession
Recovery
Downturn
Recession
Recovery
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Impact of Boom on growth, employment, and inflation
It is the peak of cycle.
GDP is growing fast because the economy is performing well.
Demand is rising, jobs will be created, rising wages firm profits rising.
But prices may rise too
GDP is growing fast because the economy is performing well.
Demand is rising, jobs will be created, rising wages firm profits rising.
But prices may rise too
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Impact of Downturn on growth, employment, and inflation
It comes after the boom.
The economy still growing but slower.
Demand stops growing, unemployment rise, wage increase slows.
The economy still growing but slower.
Demand stops growing, unemployment rise, wage increase slows.
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Impact of Recession/depression on growth, employment, and inflation
Bottom of the economic cycle where GDP starts to fall.
Associated with widespread poverty.
Demand starts to fall (non-essentials), Unemployment rises sharply, low businesses confidence
Associated with widespread poverty.
Demand starts to fall (non-essentials), Unemployment rises sharply, low businesses confidence
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Impact of Recovery on growth, employment, and inflation
GDP starts to rise again,
Businesses regain confidence and increase in economic activity
Demand rises, unemployment falls, and prices rise again
Businesses regain confidence and increase in economic activity
Demand rises, unemployment falls, and prices rise again
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Impact of Employment on Economic Growth
Economic growth is the result of businesses generating more output.
Since businesses produce more, they need more workers.
So Economic Growth raises employment levels.
Since businesses produce more, they need more workers.
So Economic Growth raises employment levels.
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Impact of Standards of Living on Economic Growth
Increases in GDP means average people have more disposable income, so they can but more goods and services
People can buy better quality food, improved housing and more leisure goods
People are living longer because they can afford healthier diets
People can buy better quality food, improved housing and more leisure goods
People are living longer because they can afford healthier diets
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Impact of Poverty on Economic Growth
Rapid EG reduces poverty.
Growth of previous business and creation of new create jobs that the poor take.
A growing economy means the government can collect more tax revenue.
Extra gov. Spending will go to the poor.
Growth of previous business and creation of new create jobs that the poor take.
A growing economy means the government can collect more tax revenue.
Extra gov. Spending will go to the poor.
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Impact of Productive Potential/Inflation on Economic Growth
1. EG can raise PP of a country
The country can produce more goods and services.
2. If EG is too fast, the economy can overheat. Causing inflation.
The country can produce more goods and services.
2. If EG is too fast, the economy can overheat. Causing inflation.
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Impact of the environment on Economic Growth
As economies grow, more cars are bought and more flights are taken=higher greenhouse gas emissions
EG uses up non-renewable resources like oil, this is unsustainable growth.
EG uses up non-renewable resources like oil, this is unsustainable growth.
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What is Inflation and deflation
1. Is a general and continuing rise in prices
2. describe a fall in average prices
2. describe a fall in average prices
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How is inflation measured
Consumer Price Index (CPI). A measure of average prices calculated from the same price information; a monthly price is worked out then the average price is converted into an index number
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Describe Demand-Pull Inflation
Inflation caused by too much demand.
If demand (same with aggregate) increases, there would be an increase in prices
If demand (same with aggregate) increases, there would be an increase in prices
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What are some causes of Demand-Pull Inflation
Rising consumer spending by tax cuts or low interest rates
Sharp increases in government spending
Rising demand for resources by firms
Booming demand for exports
Sharp increases in government spending
Rising demand for resources by firms
Booming demand for exports
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Describe Cost-Push Inflation
Inflation cause by rising costs.
When businesses are faced with high costs they rise prices to protect their profit.
When businesses are faced with high costs they rise prices to protect their profit.
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What are some causes of Cost-Push Inflation
Rising costs of imported goods
Wage increases
Increases in taxation
Wage increases
Increases in taxation
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Prices as an Impact of Inflation
Main problem with Inflation is that prices are rising.
Reduces the purchasing power of money
People can’t buy as much with their income
Households will experience fall in living standards
Reduces the purchasing power of money
People can’t buy as much with their income
Households will experience fall in living standards
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Wages as an Impact of Inflation
Workers need to increase their wages to compensate for loss in purchasing power of money. Because of higher wages, firms will raise their prices cuz of risen costs. higher prices lead to higher wages which lead to higher prices. Causes conflict between em
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Exports as an Impact of Inflation
Rise in price of exports, causing a fall in demand in exports
Balance of payments is affected negatively
Falling export demand will also result in job losses
Balance of payments is affected negatively
Falling export demand will also result in job losses
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Unemployment as an Impact of Inflation
High inflation levels means aggregate demand is rising, so firms will want to increase their outputs. Recruits more workers and reduces unemployment.
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Menu Costs as an Impact of Inflation
Firms have to increase prices frequently. Costs money cuz customers have to be told. Ex: New brochures
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Show Leather Costs as an Impact of Inflation
Consumers and firms will spend more time looking for the lowest prices.
Which involves ‘shopping around’ which a cost because it wastes times
Which involves ‘shopping around’ which a cost because it wastes times
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Uncertainty as an Impact of Inflation
Inflation causes uncertainty and makes planning for the future difficult. Especially making investment decisions
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Consumer Confidence as an Impact of Inflation
Inflation may make consumer anxious, and become more cautious-less willing to borrow money
Start to save more, so they have reserves for unforeseen circumstances,
This will reduce demand which isn’t good for job security
Start to save more, so they have reserves for unforeseen circumstances,
This will reduce demand which isn’t good for job security
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Business Confidence as an Impact of Inflation
May postpone growth plans or reduce their spending on product development
Less likely to take risks, so EG rates will fall
Less likely to take risks, so EG rates will fall
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Investment as an Impact of Inflation
Causes a decline in business investment. The uncertainty will cause investment projects to be postponed or cancelled. Will have a negative impact on EG and future level of employment in the economy
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What is Unemployment
When those who are actively seeking work are unable to find a job
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How is Unemployment measured
In the EU, it’s the Labour Force Survey
Done monthly
Anyone who has at least one hour’s paid work in a week, or temporarily away from a job (vacation) is unemployed
Done monthly
Anyone who has at least one hour’s paid work in a week, or temporarily away from a job (vacation) is unemployed
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Describe Cyclical/Demand Deficient Unemployment
Linked to economic cycle
When an economy moves from a boom into a downturn/ People lose their jobs because demand for goods and services start to fall
When an economy moves from a boom into a downturn/ People lose their jobs because demand for goods and services start to fall
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Describe Structural unemployment
Changes in the structure of the economy. Sectoral, Technological, and Regional Unemployment
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Describe Seasonal unemployment
Some workers are only required for certain times of the year
Little can be done to reduce this unemployment because it is linked to the climate
Little can be done to reduce this unemployment because it is linked to the climate
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Describe Voluntary Unemployment
Most people are unemployed against their wishes but
There are people who choose not to work=Voluntarily unemployed
May choose this because they don’t like the wages offered, or they don’t like the idea of work
There are people who choose not to work=Voluntarily unemployed
May choose this because they don’t like the wages offered, or they don’t like the idea of work
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Describe Frictional Unemployment
Short-term unemployment
Occurs when moving from one job to another
Will always exist in an economy but isn’t a problem
Occurs when moving from one job to another
Will always exist in an economy but isn’t a problem
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Output as an Impact of Unemployment
productive potential of a country is not being fully exploited.
Levels of output are lower than they could be.
National income and living standards will be lower. However if technological, output could increase
Levels of output are lower than they could be.
National income and living standards will be lower. However if technological, output could increase
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Use of Scarce Resources as an Impact of Unemployment
A waste of resources and results in lower levels of national income
If there is full employment in an economy, output will be higher and income per head will be higher
Sometimes, youth unemployment is high and is considered a great waste of resources.
If there is full employment in an economy, output will be higher and income per head will be higher
Sometimes, youth unemployment is high and is considered a great waste of resources.
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Poverty as an Impact of Unemployment
In developing countries, many don't work so they live in poverty. In developed countries, unemployed people suffer hardships.
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Government Spending on Benefits as an Impact of Unemployment
If unemployment levels rise, the gov has to allocate more money to unemployment benefits
Causing an opportunity cost
Causing an opportunity cost
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Tax Revenue as an Impact of Unemployment
As unemployment rises, tax revenues will fall because most taxes are linked to income and spending. the gov has less to spend and may have to cut public sector services. government may borrow more, and increase national debt. Or increase tax rates.
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Consumer Confidence as an Impact of Unemployment
During high unemployment, CC is likely to fall. Unemployed people lose confidence and play a smaller role in the economy
People who are employed become worried about their job security and spend less
People who are employed become worried about their job security and spend less
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Business Confidence as an Impact of Unemployment
Remaining workers may be demotivated because they fear they will be next
Sales are likely to fall for most businesses when unemployment rises. Firms producing non-essential goods/services are likely to be hit harder
Sales are likely to fall for most businesses when unemployment rises. Firms producing non-essential goods/services are likely to be hit harder
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Society as an Impact of Unemployment
Local Communities-local unemployment can be very high. Areas become run down. Wider Society- Individuals may doubt their value as a person. Can lead to stress within relationships
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Other cards in this set
Card 2
Front
How is EG measured
Back
gross domestic product (GDP). GDP is the market value (total worth) of all final goods and services
Card 3
Front
Limitations of GDP as a measure of growth
Back
Card 4
Front
What are the four different phases of the Economic Cycle
Back
Card 5
Front
Impact of Boom on growth, employment, and inflation
Back
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