Week 3

Question 1

Frictional Unemployment?

Answer 1

People being in between jobs - short term.

Question 2

Structural Unemployment?

Answer 2

The decline of an industry.

Question 3

Technological Unemployment?

Answer 3

E.g. Horse and Carts decline Cars grow.

Question 4

Seasonal Unemployment?

Answer 4

E.g. Ibiza jobs, for example, only summer season

Question 5

Cyclical Unemployment?

Answer 5

Economies appear to go through a pattern of “boom” and “bust” – of periods of a lot of economic activity and then periods of rising unemployment and falling production

Question 6

Demand deficient Unemployment?

Answer 6

Sometimes there might be unemployment because the economy is being run at well below capacity. The economy might be at “rest” or “equilibrium” but still have a lot of unemployment.

Question 7

Voluntary Unemployment?

Answer 7

Demand a higher wage, or just choose not to work.

Question 8

Real wage Unemployment?

Answer 8

Wages are too high, the argument against the minimum wage.

Question 9

How to reduce Unemployment (5)?

Answer 9

1. Better training and retraining facilities
2. Better information about vacancies
3. Encourage firms to take on unemployed for a few weeks so that they get something on their C.V.s
4. Check the costs of employment for the firm – regulations; minimum wage; paternity/maternity leave and so on
5. Improve mobility of labour. That is geographical mobility and occupational mobility

Question 10

How is inflation measured?

Answer 10

Inflation is usually measured by using an index and a theoretical typical “basket of goods and services” and seeing how that has risen in price over a given period of time. The price of a “basket of goods” in 2005 might be £2000. An index of 100 is given to that year. (2005 is the base year in this example). If the price rises to £2500 in 2010 and £4000 in year 2019 then the index has risen to 125 for year 2010 and 200 for year 2019

Question 11

Costs of inflation?

Answer 11

a) Costs of adjustment - shops having to re-price items – sometimes called “menu costs”;
b) Industrial disputes about pay - the 1970s in the U.K. showed the social and political costs of inflation (or, to be precise, the consequences of inflation).
c) Lending might be discouraged as lenders will worry about the real value of the money they receive back

Question 12

Cost-push vs Demand-Pull inflation?

Answer 12

Cost-push: where prices rise because cost increases have been passed on to the customer. So if raw material costs increase;or the owners of a firm want to increase the rate of profit;or the trade union puts in a large pay claim which cannot be financed by increased productivity;or the government increases V.A.T. or other taxes on production then prices may rise and economic actors (firms and individuals) may react by putting up their prices

Demand-pull: where prices increase because ‘too much money chases too few goods”. Basically supply and demand.

Question 13

How to reduce inflation?

Answer 13

1) “Monetarists” wanted the money supply (bank credit) strictly controlled so as to stop ‘demand-pull inflation’ (‘too much money chasing too few goods’).
2) Incomes policies were used in the past to try to stem the increase in prices and of wages.
3) Increased competition between firms may well have kept prices low – think of the ‘supermarket wars’
4) Globalisation has been an effective anti-inflation policy. Because competition is so world wide firms have to be very cost conscious and trade unions know that if they are not cost conscious then the employer might move abroad. The lower transport costs the more effective the international competition and so the more the pressure on costs and so the lower inflation