Unit 4,Economic Growth, Unemployment and Price stability flashcards

economic growth

an increase in an economy’s output of goods and services

economic development

an increase in welfare and quality of life

economic growth rate

the annual percentage change in output of an economy

nominal (or money) GDP

total output measured in current price

real GDP

total output measured in constant prices, nominal GDP x price index in base year / price index in current year

base year

the reference point in time, it is the starting year in an index and is given a value of 100

constant prices

prices in a base year

price index

a way of comparing changes in the price level over time, the base year is given a value of 100 and the value of each following year is a percentage of it

GDP deflator

the price index of all domestically produced goods and services

causes of economic growth

an increase in the quantity or quality of resources

recession

a decline in real GDP over at least two consecutive quarters

issue with economic growth in low-income countries

the main obstacle to increases in the quantity and quality of the resources in some-low income countries is the opportunity cost of allocating resources away from their current use

costs of economic growth

opportunity cost of producing more capital goods in the short run, increased stress and anxiety, possible depletion of natural resources and damage to the environment

benefits of economic growth

increase in goods and services available for the country’s citizens, helps to raise living standards, greater ease in redistribution of income, rise in employment, increase in business and consumer confidence

unemployment

the state of being willing and able to work but not having a job

homemakers

people who look after the household of their own families

economically inactive

people who are not in the labour force

labour force

the total number of workers who are available for work

economically active

people in the labour force

factors influencing the size of the labor force

the school leaving age, number of people who remain in full-time education above the school leaving age, the retirement age, the proportion of women who join the labour force, labour force participation rate

labour force participation rate

the proportion of the population that are of working age and who are either working or actively seeking work

level of unemployment

the total number of workers who are unemployed

unemployment rate

the number of unemployed people as a percentage of the labour force

employment rate

employed workers as a percentage of the population of working age

discouraged workers

workers who would like a job but who have given up actively seeking work after a period of trying to find work

claimant count measure

a measure of unemployment based on those claiming unemployment benefits

labour force survey measure

a measure of unemployment based on a survey that identifies people who are actively seeking a job

issue with the claimant count measure

it is not completely accurate however as some people may not claim unemployment benefits or may illegally claim unemployment benefits while employed; does not include those too young or too old to claim unemployment benefits and those who are full-time students looking for work

issue with the labour force survey measure

it is more expensive and time-consuming than the claimant-count measure and is subject to sampling error

advantages of the labour force survey measure

picks up on groups not included in the claimant count, based on internationally agreed concepts and definitions making international comparison easier, provides more information on the qualifications of job-seekers

sampling error

the people being surveyed having different characteristics or experiences to the rest of the population

frictional unemployment

unemployment that is temporary and arises when workers are in-between jobs

voluntary unemployment

unemployment resulting from the unemployed choosing not to accept jobs at the going wage rate, a form of frictional unemployment

search unemployment

unemployment that exists when people take time looking for a job they are willing to accept, a form of frictional unemployment

casual unemployment

unemployment that occurs when people have left one short-term job and before they take up another short term job, a form of frictional unemployment

seasonal unemployment

unemployment arising at particular times of the year when demand for the product falls, a form of frictional unemployment

structural unemployment

unemployment caused as a result of the changing structure of economic activity

regional unemployment

unemployment arising from decline in job vacancies in a particular area of the country, a form of structural unemployment

technological unemployment

unemployment caused by advances in technology, a form of structural unemployment

international unemployment

unemployment arising when a country loses its international competitiveness in producing a product or products, a form of structural unemployment

cyclical unemployment

unemployment that arises from a lack of aggregate demand

underemployment

a situation where workers are working fewer hours than they would like or working in jobs that they are overqualified for

price stability

a low and stable inflation rate

barter

direct exchange of goods and services for other goods and services

inflation rate

the percentage in an economy’s price level over a period of time

inflation

a sustained increase in an economy’s price levels over a period of time

price level

the average of all prices in an economy

creeping inflation

a low rate of inflation, e.g. 2%

hyperinflation

a very high rate of inflation, which may result in people losing confidence in the currency

deflation

a sustained decrease in an economy’s price levels over a period of time

disinflation

a fall in the inflation rate

annual average method

a way of calculating the inflation rate by comparing the average level of prices during a twelve-month period with the average level in the previous twelve months

year-on-year method

a way of calculating the inflation rate by comparing the percentage change in the price level for a given month with that of the same month of the previous year

consumer price index (CPI)

a measure that shows the average change in the prices of a representative basket of products purchased by households

method of constructing a consumer price index

select a base year, conduct a survey to find people’s spending patterns, attach weights to the different categories, find out price changes, multiply weights by price changes and sum them to get the consumer price index

difficulties with base year (CPI)

it can be difficult to find a base year which has an a rate of inflation that is not unusually high or low in order to avoid skewing the results

difficulties with the survey (CPI)

The sample may have a disproportionate amount of a certain group of people, leading to inaccurate representations of spending patterns and thus the consumer price index. People who complete the survey may also make errors or deliberately leave items out

issues with the basket of goods and services (CPI)

the basket cannot be update once set, and so does not account for changes in consumer spending patterns due to change in relative price; the basket takes time to include new products and remove old products; and prices may not change while size or quality changes

money values

values at the prices operating at the time

real data

data adjusted for inflation

cost-push inflation

inflation caused by increases in costs of production

wage-price spiral

higher wages causing prices to rise, which, in turn, push up wages and so on

demand-pull inflation

inflation caused by increases in aggregate demand not matched by equivalent increases in aggregate supply

monetarists

economists who consider that inflation is caused by an excessive growth in the money supply

possible costs of inflation

reduction in net exports, unplanned redistribution of income, menu cost, shoe leather costs, fiscal drag, discouragement of investment, inflationary noise and inflation causing inflation

menu costs

costs to firms of having to change prices due to inflation

shoe leather costs

costs of moving money around in search of the highest interest rate

fiscal drag

the income of people and firms being pushed into higher tax brackets as a result of inflation

inflationary noise

confusion over relative prices due to inflation

potential benefits of inflation

stimulates output, reduces the burden of debt, prevents some unemployment

total costs

the sum of fixed costs and variable costs

factors affecting the consequences of inflation

the cause of inflation, the rate of inflation, whether the rate of inflation is accelerating or stable, whether the inflation rate is one that has been expected, how the inflation rate compares with the rate of other countries

consequences of deflation

increases the burden of debt, may increase the real rate of interest, may result in menu costs

good deflation

price level falls and real GDP rises, result of an increase in aggregate supply

bad deflation

output falls, runs the risk of developing into a deflationary spiral, result of a fall in aggregate demand

debtors

people, firms, or governments who owe money