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Flashcards in Macroeconomic Objectives Deck (18)
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State the macroeconomic objectives

1) Sustainable economic growth
2) Full employment
3) Price stability
4) External balance
5) Income equity


Define economic growth

An increase in real GDP (or real output) over time.


Define full employment

When the level of unemployment in an economy is at the natural rate of unemployment and the economy is at potential output


Define price stability

The rate of inflation in an economy is low and stable


Define external balance

The value of exports and imports for an economy are roughly equal (no large trade deficit or trade surplus)


Define income equity

When labour receives income for their work that is 'fair'


State the types of unemployement

1) Cyclical
2) Structural
3) Seasonal
4) Frictional


What is cyclical unemployment?

Unemployment caused by a lack of demand in the economy. Occurs when in a downturn/recession phase of the business cycle, and when the AD-AS model has a deflationary gap.


What can cause structural unemployment?

1) Skill mismatch, whereby the skills of the available labour do not match the skill requirements of available work, due to the changing structure of the economy over time.
2) Geographic mismatch, whereby the workers are not in the same geographic location as the jobs that utilise their skills.
3) Labour market rigidities


How is the unemployment rate measured?

All people who are willing and able to work, but do not have a job expressed as a percentage of all people willing and able to work.


Define frictional unemployment

Unemployment caused by the people changing jobs, but not immediately finding a new job.


Define seasonal unemployment

Unemployment that occurs regularly at certain times of the year due to regular fluctuations in demand e.g. at Christmas time, harvest, tourist seasons.


What are the types of costs of unemployment?

Economic costs and social costs


What are the economic costs of unemployment?

1) Loss of output (GDP)
2) Loss of tax revenue
3) Increased cost of unemployment benefits
4) Loss of income for individuals
5) Income inequity


What are the social costs of unemployment?

1) Increased crime
2) Increased stress
3) Increased indebtedness
4) Homelessness
5) Family breakdown


Limitations of the unemployment rate as an indicator

1) Hidden unemployment
2) Underemployment
3) Ignores disparities among different groups (e.g. ethnicity, gender, age)


What is the equation to calculate the unemployment rate (HL)

Number of unemployed people / Labour force

(Number of people willing and able to work with no job / total number of people willing and able to work)


Distinguish between demand-pull and cost-push inflation

Demand-pull: caused by an increase in AD

Cost-push: caused by a decrease in SRAS