Macroeconomics: Inequality, Inflation, and Economic Growth

Vocabulary flashcards reviewing key macroeconomic concepts including the causes and impacts of income inequality, types of inflation, consequences of economic growth, and supply-side versus demand-side policies.

causes of income inequality and poverty

1. Globalisation (increase comp = reduce COP , high skilled workers benefit from globalisation )

2. Unemployment (while employed workers continue to earn wages , unemployed without govt support experience significant loss of income )

3. Difference in human capital (higher levels = higher jobs = firms willing to pay more)

Impact of income inequality

1. Non material SOL (lack similar healthcare , education and leisure opportunities)

2. Material SOL (less disposable income to purchase necessities)

3. Reduce economic growth by limiting opportunities for low income individuals ( less access to education / training = cannot be highly productive = economy not utilising available labour to full potential = reduce labour productivity)

4. Social and political unrest (uncertainty by firms on future economic conditions and policies , reduce investment )

cost of inflation

1. Reduce material SOL (if nominal income don’t increase same rate)

2. Increase unemployment (cyclical as COP increase)

3. Reduce economic growth (uncertainty by firms)

Benefits of inflation

1. Low and slow (reduce cyclical UE)

2. Material SOL ( more workers get hired = higher income = increase consumption)

3. Economic growth (AD increase , short run)

Benefit of economic growth

1. Reduce cyclical UE

2. Improve material SOL

3. improved government finances (collect more indirect and direct tax , fund social welfare activities)

Negative of economic growth

1. Income inequality (if benefits are unevenly distributed)

2. Inflation (excessive increase in AD)

3. Environmental degradation .

SS effects on economic growth

1. Reduce corporate tax - Investment increase (short run)

2. My skills future — improve quality of labour , more productive (long run)

Demand side policies on SS and DD

1. Demand — EFP , increase govt

2. Supply — EMP (reduce interest rate) , encourage firms take loans and expand production (adopt tech + employ more )

AD shift left examples (close inflationary gap)

interest rate increase

1. Covid-19 ,to combat inflation , IR increase around 0% in 2022 to 5% in 2023

AD shift right example (close deflationary gap + actual economic growth)

1. American Reinvestment and Recovery Act (September 2007 near 0% to 5% in December 2008)

2. March 2022 , IR remained near 0%

actual economic growth example

1. SRAS shift right — fall in oil prices (positive supply side shock that reduces firms COP)

2. AD increase