2.1 Measures of economic performance Flashcards

Question

What is unemployment VS underemployment and the rate of unemployment VS the level of unemployment

Answer 1

Unemployment is the level of people looking for work but who cannot find a job at a point in time. Underemployment occurs when workers can not find a job that is suitable for their qualifications and experience or who cannot find enough hours to work Level= Number of people looking for work but who are unemployed Rate= Number of people unemployed as a % of the labour force.

Answer 2

Claimant count: The number of people claiming job seekers allowance. Labour force survey: A quarterly survey of approximately 60,000 households compiled by the office of national statistics studying the employment circumstances of the UK population.

Answer 3

Underestimate unemployment statistics: - Not everyone who is eligible signs on - Self-employed workers who are temporarily unemployed tend not to claim. - Under 18s and over 60s don't count - Constantly changing criteria Overestimate unemployment statistics: - Some people who claim JSA aren't actively looking for work - Some have jobs in black economey but continue to claim benefits

Answer 4

+ It is internationally recognised + Picks up trends in sectors + Potential for analysis of data + Better guide for policy makers + Generally accepted to be more accurate - Costly to compile - Subject to sampling and extrapolation errors

Answer 5

This occurs when long term shifts in the structure of the economy impact upon the job market. Arises from the mismatch of skills and job opportunities as the pattern of labour demand changes - labour immobility. 1. Decline of manufacturing 2. Occupational immobility 3. Geographical immobility 4. Robotics replacing jobs 5. Foreign competition; rising imports Primary sector: Mining, fishing, oil extraction Secondary sector: Manufacturing / processing Tertiary sector: Service delivery; banking, education, finance

Answer 6

Caused by a fall in or persistent weakness of AD leading to a decline in GDP and jobs. (Demand deficiency) Is heavily linked to the economic cycle and occurs when there is a negative output gap. Classical: If the economy is in a recession then firms don't need to employ as many workers. Keynesian: Is a cyclical relationship between demand, output, employment and unemployment. Caused by a fall in AD = a decrease in RNO and employment. A slowdown can lead to a business laying off workers as they lack confidence.

Answer 7

Transitional unemployment due to people moving between jobs such as new entrants to the labour market. It is typically short-term and often because workers do not have perfect and immediate information about every job opportunity available to them. Assumed there will always be some frictional unemployment that persists in an economy.

Answer 8

Regular seasonal changes in employment / labour demand such as tourism, retail and construction. It tends to happen at seasonal industries such as leisure, tourism and farming. Also possibly retail industries as more workers are employed over busy periods. As a result, this can distort unemployment figures so there will often be seasonally adjusted which seeks to smooth out the fluctuations to provide more accurate statistics.

Answer 9

Voluntary: Turning down the opportunity to work at the going rate (as a result of better / generous unemployment benefits system) Classical: Also known as real wage , increases and decreases in this are a function of the law of supply and demand. Occurs when the wages a worker is willing to accept (real wages) is in excess of those an employer is willing to pay (market clearing wages)

Answer 10

1. Increased spending on employment programmes and benefits. Possible government borrowing. 2. Fall in revenue from income tax and taxes on consumer spending. Consumption decreases. 3. Lost output as there is a wastage of economic resources so likely the economy will produce within PPF.

Answer 11

1. Reduced demand for goods / services 2. Reduced productivity and profitability 3. Less incentive to invest

Answer 12

1. Lower living standards 2. De-skilling / de-minishing human capital 3. Social and financial costs 4. Reduced chances of finding work

Answer 13

Economic: 1. lost output, the economy is inside the PPF 2. fall in real incomes and lower living standards 3. drop in taxes revenues and higher welfare 4. possible decline in labour supply as unemployed move overseas Social: 1. Increase in relative poverty and welfare dependency 2. Extra demands on national health service 3. Link between persistent unemployment and social problems

Answer 14

- Reduced risk of inflation as their are lower wages and price discounts - There is a pool of unemployed labour available for growing businesses - Rise in self-employment start-ups as alternative to being unemployed

Answer 15

Expansionary fiscal policy: Increase in government spending or decrease taxes Expansionary monetary policy: Decrease in IR

Answer 16

- Reduce minimum wages - Reduce strength of trade unions (-) Negative impact on workers and their living standards (-) Potential to driive up income inequality in the economy

Answer 17

Interventionist supply side policies: - Increase government spending on education and training / Boosting the skills of the workforce, improving productivity and bringing down the occupational immobility of labour. - Governments offering subsidies to private firms to encourage more in work training / Transferable skills - Increase government spending on infrastructure / Helps reduce geographical immobility of labour and allow workers to take vacancy’s that are maybe in towns further away Market based supply side policies: - Reduction in benefits / So workers have an incentive to skill themselves up and make sure they are suitable to take vacancy’s that are out there. Meaning workers cant be as picky and reject jobs in areas they don’t like.

Answer 18

Interventionist SSPs: - Governments can spend more to better resources for job centres / which can help people that are. unemployed find jobs. - Governments could provide subsidies to private job agencies / where they will get better resources to be more equipped to more of the frictionally unemployed and provide the best jobs for them. - Increase government spending on infrastructure / So that the frictionally unemployed have got a greater search radius looking for vacancy’s. Market based SSPs: - Reduce benefits / So that those who are unemployed are forced to be quicker knowing they don’t have the safety net to fall back on in their search time.

Answer 19

A record of all financial transactions made between consumers, businesses and the government in one country with others. The figures tell us about how much is being spent by consumers and firms on imported goods and services and how successful firms have been in exporting to other countries. - Inflows of foreign currency are counted as a positive entry (E.g exports sold overseas) - Outflows of foreign currency are counted as a negative entry (E.g imported goods and services)

Answer 20

Current: Trade in goods, services + investment incomes + transfers Capital / Financial: Capital and financial flows, net investment, portfolio investment. In theory there should be a balancing between current account and capital account. If there is a current account deficit there should be a surplus on the capital / financial account. This can be done by attracting foreign direct investment (FDI) or running down official reserves of foreign currency.

Answer 21

- Trade in goods: Measures imports and exports of visible goods - Trade in services: Measures imports and exports of services such as insurance or tourism. - Investment and employment income (Primary income): This covers flows of money in and out of a country resulting from employment or earlier investment. - Transfers: (Secondary income): transfers are the movements of money between countries which aren’t paying for goods or services and aren’t the result of investment.

Answer 22

A contract whose value is based on something else and any security whose value is determined by or derived from the value of another asset. Value of underlying asset = Value of derivative

Answer 23

Capital account: Includes transfers of non-monetary and fixed assets - an important part of this is the flow of non-monetary and fixed assets of immigrants and emigrants. Financial account: Involves the movement of financial assets which includes: - Portfolio investment; investment in financial assets - Financial derivatives; Contracts whose value is based on the value of an asset - Reserve assets; Financial assets held by the BOE to be used as and when they’re needed

Answer 24

As consumers spending increases so does our demand for goods as in the UK we have a high propensity to consume imported goods, therefore improvements in economic growth and consumer spending leads to an increased and persistent deficit. Uk firms have become less competitive in the manufacture of goods so rely more on imported goods. If our exchange rate is too strong then it makes our exports less competitive and imports more affordable.

Answer 25

Controlling consumer spending will reduce the demand for imports. Investing in the supply side of the economy should improve productivity of UK firms in terms of competitiveness. Depreciation of the exchange rate may make our exports more price competitive. Improve overall macroeconomic conditions in the UK

Answer 26

- Consume less and save more If UK households or the government reduce consumption (businesses save more than they spend) imports will drop and less borrowing from aborad will be needed to pay for consumption. Meaning consumption taxes could help reduce the deficit by discouraging consumption and increasing saving. - Depreciate the exchange rate Trade deficits reversals are typically driven by a significant real exchange rate depreciation. As a weaker pound makes imports more expensive and exports cheaper improving the trade balance. - Tax capital inflows A tax on capital inflows (non-foreign direct investment) that rises with the size of the inflow could reduce excessive borrowing for consumption and help close the government imbalance as borrowing from abroad is not cheap and easy.

Answer 27

- Strong domestic growth Means incomes are high along with living standards so people are more willing to buy imports resulting in more money leaving the country worsening the current account position - Recession overseas Incomes abroad are falling so demand for exports will reduce meaning the revenue generated from exports is going to decrease worsening the current account position - Strong exchange rates Means imports are going to be cheaper and exports are going to be more expensive meaning the revenue from exports reduces. Or we will import more and the money leaving the country increases making our current account position worse.

Answer 28

Due to lack of competitiveness of domestic exports: 1. Low investment 2. Low productivity 3. High relative inflation 4. High ULC (unit labour cost) 5. Poor quality / reliability 6. Depletion of resources: Could lead to our exports falling and lose revenue from them

Answer 29

Lower AD (X-M) decrease Because the trade balance will most likely be negative, a deficit, which implies net exports in the AD equation is negative which is pulling down AD. Debt Burdens leading to currency crisis and then economic crisis. Exchange rate decreasing

Answer 30

Policies to reduce the amount of spending on imports in the economy and reduce AD and incomes in the economy in doing so. Contractionary Monetary Policy: Increase IR, decrease money supply Contractionary Fiscal Policy: Decrease government spending, increase taxation

Answer 31

There is a conflict of objectives as growth will reduce, unemployment will increase and a recession may be caused as a result. Consumer and business confidence may be so high that AD does not in fact fall if IR increases The marginal propensity to import may not make an impact if it is low

Answer 32

Protectionism: - Tariffs - Domestic subsidies - Embargo - Non-tariff barriors So a government can target certain imports on goods and services and use protectionsism to reduce import expenditure.

2.1 Measures of economic performance Flashcards

(56 cards)