3.3: Macroeconomic Objectives Flashcards
(20 cards)
Macro Objectives
- Economic Growth
- Full Employment
- Price Level Stability (Low and stable inflation)
- Improved Quality in the Distribution of Income
Economic Growth
An increase in the output of goods and services by a nation over time or increase in the per capita income of a nation over time
Measuring Economic Growth
(GDPy2 - GDPy1) ÷ (GDPy1)
- Percentage Change
Sources of Economic Growth
- Physical Capital and Technology
- Human Capital and Productivity
Physical Capital and Technology
A nation’s stock of physical capital is the quantity and quality of technology and infrastructure in a nation
- Physical capital is: Computers and communication technologies, high speed internet access, efficient transportation networks, sanitation infrastructure, etc.
Human Capital and Productivity
Refers to the quality of the labor force in a nation.
- Can be improved through education and training
Consequences of Economic Growth
- Externalities
- Inflation
- Structural Unemployment
- Unequal Distribution of Income
Externalities
Often economic growth comes at the expense of the environment. There is often an increase in resource depletion leading to harmful effects on the environment and humans health
Structural Unemployment
When certain skills are no longer needed in growing economies
Inflation
When economies experience rapid economic growth, it often leads to high rates of inflation
Unequal Distribution of Income
The benefits of the growing economy might not be split evenly amongst society, particularly where the richer people benefit a lot more while lower and middle classes don’t
Unemployment
The state of being out of work, actively seeking work, but unable to get work
Measuring Unemployment (Unemployment Rate)
(# of ppl unemployed ÷ Total Labor Force (TLF)) x 100
Total Labor Force
Population of individuals in a nation who are of legal working age and are either employed or unemployed
Types of Unemployment
- Frictional Unemployment
- Structural Unemployment
- Cyclical Unemployment
Frictional Unemployment
Those searching for jobs or waiting to take a job
Structural Unemployment
Unemployment arising because of changes in the structure of demand in the labor force
Cyclical Unemployment
Unemployment Caused by the Recession Phase of the Business Cycle (Sometimes called demand deficient unemployment). Caused by a fall in demand for a nation’s output, leading to a loss of jobs in the economy.
Causes of Unemployment
Unemployment is caused by 2 factors: A decrease in aggregate demand or a decrease in aggregate supply.
Causes of Cyclical Unemployment
- Demand-deficient unemployment
- Unemployment caused by a negative supply shock
