economics macro unemployment Flashcards
(28 cards)
What is the definition of economic growth?
An increase in the production of goods and services in an economy over time
Measurement is often done using gross domestic product (GDP)
How is economic growth measured?
Using increases in gross domestic product (GDP)
GDP measures the total value of all goods and services produced in a country
What are the limitations of GDP as a measure of growth?
It does not account for income distribution, environmental degradation, and non-market transactions
GDP can give a misleading picture of economic health
What are the stages of the economic cycle?
Boom, downturn, recession, recovery
Each stage affects economic growth, inflation, and unemployment differently
What is the effect of a boom on economic growth?
Increases in economic growth, lower unemployment, potential inflation
Often leads to higher consumer and business confidence
What is the effect of a recession on economic growth?
Decreases in economic growth, higher unemployment, potential deflation
Can lead to reduced consumer spending and business investment
What is the definition of inflation?
The rate at which the general level of prices for goods and services rises
Typically measured by the consumer price index (CPI)
What is deflation?
A decrease in the general price level of goods and services
Can lead to reduced consumer spending as people anticipate lower prices
How is inflation measured?
Using the consumer price index (CPI)
CPI tracks changes in the price level of a basket of consumer goods and services
What are the types of inflation?
- Demand pull
- Cost push
Demand pull inflation occurs when demand exceeds supply; cost push inflation occurs when production costs rise
What is the relationship between inflation and interest rates?
Typically, as inflation rises, interest rates also rise
Central banks adjust interest rates to control inflation
What is the impact of inflation on prices?
Causes prices to rise
This can erode purchasing power if wages do not increase correspondingly
What is the impact of inflation on wages?
Can lead to wage increases, but may not keep pace with inflation
Real wages may decrease if inflation outpaces nominal wage growth
What is the impact of inflation on exports?
Can decrease export competitiveness
Higher domestic prices can make exported goods more expensive abroad
What is the impact of inflation on unemployment?
Can create uncertainty, potentially leading to higher unemployment
Businesses may reduce hiring or lay off workers in response to rising costs
What are menu costs?
The costs associated with changing prices
Businesses may incur costs from printing new menus, labels, etc.
What are shoe leather costs?
The costs of time and effort that people spend to counteract the effects of inflation
Often refers to the increased frequency of bank withdrawals or shopping
What is the definition of unemployment?
The situation when individuals who are willing and able to work cannot find a job
A key indicator of economic health
How is unemployment measured?
Using the International Labour Organization (ILO) measure
This includes those actively seeking work
What are the types of unemployment?
- Cyclical
- Structural
- Seasonal
- Voluntary
- Frictional
Each type has different causes and implications for the economy
What is the impact of unemployment on output?
Reduces overall economic output
Unemployment means fewer people are producing goods and services
What is the impact of unemployment on the use of scarce resources?
Leads to underutilization of resources
Scarce resources are not being used to their full potential
What is the impact of unemployment on poverty?
Increases poverty levels
Unemployment can lead to loss of income and increased reliance on social benefits
What is the impact of unemployment on government spending?
Increases government spending on benefits
More unemployed individuals require financial assistance from the government
