Macroeconomics objectives Flashcards
(17 cards)
Macroeconomic objectives are the primary goals of economic policy
- Economic Growth
- Low Unemployment
- Low stable rates of inflation
- External balance
- Equity
Economic growth
Sustained increases in the level of total expenditure or output (Real GDP) over time
Low unemployment
Economic situation in which all available labour resources are being used in the most efficient way possible
Measure of unemployment
State of being out of work, actively seeking work, but unable to get work
- Of working age
- Not employed
- Actively seeking
Limitations of measure of unemployment
- Only an average
- Varies across groups
- Small sample size
- No distinction on type of work
- Excludes people on retraining programs
- Includes people working in underground economy
Unemployment rate
= (Number of unemployed/Labour Force) x 100
Labour market rigidities
- Minimum wage
- Labour union acitvities and wage bargaining with employers
- Employment protection laws
- Generous unemployment benefits
Consequences of Unemployment - Economic
Loss of real output, loss of household income, loss of tax revenue for the government, higher unemployment benefit payments, rising inequality, loss of skill sets
Consequences of Unemployment - Social
Crime and violence, drug use, homelessness
Consequences of Unemployment - Personal
Loss of income, increased indebtedness, lower self esteem, depression, suicide, family breakdown, addictions, health issues
Low and stable rates of inflation
Low and stable rates of inflation results in the avoidance of long periods of inflation or deflation, sustaining value or money over time
Loser of low of stable rates of inflation
Fixed income earners, Slow wage increase, Cash holders, Savers, Lenders
Winner of low of stable rates of inflation
Borrowers, Payers of fixed income and slow wage increase earners
Consequences of inflation
Redistribution effects
- Losers and Winners
Uncertainty
Menu costs
Money illusion
International competitiveness
Inflation, Disinflation and Deflation
Inflation - a sustained increase in the general price level
Disinflation - occurs when inflation occurs at a slower rate
Deflation - a sustained decrease in the general price level
Demand pull inflation
When AD is pulled up in a ADAS diagram due to inflation
Cost push inflation
When SRAS is pushed down in a ADAS diagram due to inflation
