Macroeconomics objective I: Low unemployment, low and stable rate inflation

Question 1

Unemployment

Answer 1

a people of working age who are actively looking for a job but who are not employed.

Question 2

Unemployment rate =

Answer 2

(N of unemployed / Labour force) x 100

Question 3

Cost unemployment

Answer 3

A loss of real output(real GDP)

A loss of income for unemployed workers.

A loss of tax revenue for the government.

Cost to the Government of unemployment benefits.

Question 4

Cost of unemployment 2

Answer 4

Cost to the Government of dealing with social problems of resulting from unemployment.

Larger budget deficit or smaller budget surplus.

More unequal distribution of income.

Unemployed people may have difficulties finding.

Question 5

Personal and social Costs

Answer 5

Personal problems: Loss of income, increased indebtedness( people borrow to survive) loss of self-esteem.
Greater social problems: High rates of unemployments( mostly when the is unequal distribution), increased crime and violence, drug use and homelessness.

Question 6

Structural unemployment

Answer 6

Factors:pg 301

Changes in demand for a particular labour skills.

Changes in the geographic location of the jobs.

Question 7

Labour rigidities

Answer 7

are factors preventing the forces of supply and demand from operating in the labour market.

Question 8

Labour rigidness components

Answer 8

Minimum wage legislation( which leads to higher than equilibrium wages)

Labour union activities and wage bargaining with employers.

Employment protection laws.

Generous unemployment benefits.( reduces the incentives to work)

Question 9

Frictional unemployment

Answer 9

occurs when workers are between jobs.(whether because they are fired and need a new one, of still waiting for a better one.

Question 10

Seasonal unemployment

Answer 10

occurs when demand for labour in certain industries changes on a seasonal basis because of variation in needs.

Question 11

Cyclical unemployment

Answer 11

occurs during a the downturns of the business cycle, when the economy is in a deflationary/recessionary gap.

Question 12

Causes of unemployment

Answer 12

Demand-side factors: (Refers to demand from firms)

Health of firms( profit levels, demand for goods)
Confidence of firms
Overall strength of the economy
Government intervention to encourage hiring
Level of labour market regulations/ cost of hiring

Question 13

Causes of unemployment_2

Answer 13

Supply-side in labour market refers to the supply of labour
by workers.

Labour market flexibility, eg. trade union strength
skills of workers
Geographic mobility of workers.
Occupational mobility of workers.

Question 14

Consequences of unemployment

Answer 14

Social issues

-May cause crime rates or homelessness.

Question 15

Consequence of unemployment_2

Reduced output

Answer 15

• If there isn’t a substitute for unemployment eg(Capital), Real Gdp would decrease.
• negative impact upon the Economy.

Question 16

Consequences of unemployment_2

Fiscal issues

Answer 16

Automatic stabilizer’s ( Unemployment benefits)

• would increase government spending when unemployment is high.
• Gov receives less income tax.-> less investment in public services to address problems.

Question 17

consequences of unemployment_3

Reduced Living standards

Answer 17

high levels of unemployment could increase inequality in the economy. _ those with low incomes may disadvantage future generations because they fall behind.