3.3. Macro Objectives - Unemployment, Inflation, Economic Growth

Unemployment

People of working age that are actively seeking work, but without work.

Labour Force

Number of people working + the unemployed.

Economically Inactive

People who are actively not seeking work; not working or unemployed. E.g. Retired people, Students, Discouraged workers (who have given up finding work).

Informal work

Cash-in-hand work or illegal work that the government doesn’t know about.

Underemployment

Workers that are employed part-time but want to work full-time, or people in jobs for which they are over-qualified.

Supply of Labour (SL)

Number of people willing and able to work.

Demand for Labour (DL)

Number of workers that firms are willing and able to employ.

Cyclical Unemployment (Demand-Deficit)

Unemployment caused by a lack of demand in the economy, pushing economy below Yf.

Natural Unemployment

Unemployment caused by occupational/geographical immobility, even though the economy is at Yf.

Frictional Unemployment

Unemployment that occurs when workers are between jobs, or between education and a job.

Seasonal Unemployment

Unemployment that occurs when the demand for labour in certain industries decreases at certain times of year.

Structural Unemployment

Unemployment that occurs when there is a permanent decrease in the demand for a particular type of labour. E.g. coal miners in UK

Inflation

A sustained increase in an economy’s APL over time.

Deflation

A sustained decrease in an economy’s APL over time.

Disinflation

A decrease in the rate of inflation in an economy.

Consumer Price Index (CPI)

Measures the price of a typical basket of goods & services consumed by the average household in an economy in a given year, compared to the price of the same basket in a base year.

Value of Basket of Goods

Value of Basket = (Price A x Weight A)+(Price B x Weight B)+…

Calculating CPI

CPI (Year X) = (Value of Basket (Year X)/Value of Basket (Base Year)) x 100

Rate of Inflation

((New CPI – Old CPI)/Old CPI) x 100

Demand-Pull Inflation

A sustained increase in the economy’s APL, caused by an increase in one of the components of AD.

Cost-Push Inflation

A sustained increase in the economy’s APL, caused by an increase in the costs of production.