MOvements within the PPF, Economic recovery or downturn, changes in the use of existing factors of production
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3 signs of long run econ growth
Shift out of PPF, Econ growth, Changes in the quantity or quality of factors of production
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What is the economic cycle
A cycle showing the typical changes in a macroecon, periods of rapid growth (boom) are balanced by slower periods of growth/contraction (recession)
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What is a boom
A period of time where real GDP increases at a faster then the trend rate of growth
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What is a positive output gap
Occurs when actual output is higher then potential output, can arise during boom when factors are used sustainabily
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What is a negative output gap
Occurs when factors of production are underused, such unemployment is a key feature of recession
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3 ways GDP an inaccurate measure of living standards
1. Takes into no account of inflation 2. Takes no account of population change 3. Takes no account of unofficial work/illegal work
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How is unemployment a danger
The economy experiences a lower output level than possible, govt funds are diverted into wellfare
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What is demand deficient unemployment
caused by short term fluctuations in aggregate demand and rises rapidly during the recession and slowdown stages of the economic cycle
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What is frictional unemployment
When workers are nto able to perfectly synchronise leaving one job and gaining another
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what is seasonal unemployment
Some industries make use of temp workers at particular times in the year e.g farming harvest
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What is structural unemployment
Creates a long term issue for the economy, the structurally unemployed want to work yet do not have the correct skill set for the firm e.g miners
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What is long term unemployment
May result from structural and technological unemployment, theory suggests the longer one is out of work, the less valid their skills and qualifications become
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What is hidden unemployment
Under-utilisation of human capital
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What is real wage unemployment
Associates with classical econ, occurs when markets do not clear effectively, so supply of labour is greater then demand
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What are the costs of unemployment
Long run causing poverty, social issues associated with poverty, lost production
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What are the benefits of unemployment
A large pool of available workers would be able to increase production quickly to take advantage of new opportunities in both domestic and global market. Firms may also be able to keep wage costs when unemployment is high
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What is the demand management (fiscal) policy to unemployment
The govt intervenes to increase AD during a slowdown. By supplementing household demand the govt aims to ensure that firms do not need to cut output, and thus unemployment so quickly, so unemployment rises more slowly
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What is a supply side policy to reduce unemployment
Aims to increase the willingness and ability of firms to produce. Structural unemployment can be tackled by through retaining opportunities and regional policy and improved rights to working mothers can help prevent unemployment
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Why is inflation an economic problem
It causes problems and less of welfare due to increased price levels
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What is demand pull inflation
Arises when AD rises quicker the supply
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What is cost push inflation
as factors of production increase, firms increase price to maintain high prices
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What are the costs of inflation
Reduce confidence in econ and reduce investment, Saving is unrewarded, redistributes from savers to borrowers, Inflation can harm trade if it outstrips those other countries
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What are the benefits of inflation
Reduces the risk of deflation, a sign of an economy in serious difficulty, redistribution may help econs in high levels of debt
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Other cards in this set
Card 2
Front
3 signs of long run econ growth
Back
Shift out of PPF, Econ growth, Changes in the quantity or quality of factors of production
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