3.3. Macroeconomic Objectives: Inflation, Unemployment, Growth, Equity

Unemployment

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

Labour Force

Number of people working, plus the number of people actively seeking work.

Unemployment Rate

Percentage of the labour force that is unemployed.

Underemployment

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

Aggregate Supply of Labour (ASL)

Number of people willing and able to work.

Aggregate Demand for Labour (ADL)

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

Demand-Deficit/Cyclical Unemployment (also known as Disequilibrium Unemployment)

Unemployment caused by a lack of aggregate demand in the economy, pushing the economy below potential output.

Natural Unemployment (also known as Equilibrium Unemployment)

Unemployment caused by occupational or geographical immobility, even though the economy is at its potential output.

Frictional Unemployment

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

Seasonal Unemployment

Unemployment that occurs due to seasonal fluctuations in the demand for certain types of labour.

Structural Unemployment

Unemployment that occurs when there is a permanent decrease in the demand for a particular type of labour.

Occupational Immobility

Occurs when workers are unwilling or unable to take jobs in different sectors.

Geographical Immobility

Occurs when workers are unwilling or unable to take jobs in different geographical locations.

Inflation

A sustained increase in an economy's average price level.

Deflation

A sustained decrease in an economy's average price level.

Disinflation

A decrease in the rate of inflation in an economy.

Consumer Price Index (CPI)

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

Formula for CPI

Value of the basket in the current year, Divided by the value of basket in the base year, x100

Core Inflation

A measure of underlying inflation in the economy, with volatile factors such as food and fuel prices stripped out of the calculation.

Producer Price Index (PPI)

Measures changes in the costs of production for firms in the economy over a year. Can be used as a predictor for future inflation.

Demand-Pull Inflation

Inflation caused by an increase in a component of AD.

Cost-Push Inflation

Inflation caused by an increase in the costs of production.

Hyperinflation

A rate of inflation above 50%.

Phillips Curve

Shows the inverse relationship between inflation and unemployment.

Stagflation

High inflation and stagnant economic growth (high unemployment) occurring at the same time.

In the Long-Run Phillips Curve model, unemployment always returns to...

...the natural rate of unemployment (Un).

Economic Growth

An increase in an economy's real output over time.

Production Possibilities Curve (PPC)

The maximum combination of goods and services that an economy can produce, when all resources are fully employed but technology is fixed.

Equity

Fairness in the distribution of income.

Lorenz Curve

Shows the percentage of national income earned by each quintile of the economy's population.

Gini Coefficient

The area between the Lorenz Curve and the line of equality, divided by the total area under the line of equality. (A/A+B)

Absolute Poverty

Occurs when people earn insufficient income to meet the basic needs of life.

Relative Poverty

Occurs when people earn incomes lower than a given percentage of the average income in that country.

Progressive Tax

As someone's income increases, the proportion of income they pay as tax increases.

Proportional Tax

People pay the same proportion of their income as tax, regardless of how much they earn.

Regressive Tax

As someone's income increases, the proportion of income they pay as tax decreases.

Average Rate of Tax

Proportion of income paid as tax (Total Tax Paid, divided by Total Income)

Marginal Rate of Tax

Proportion of additional income paid as tax (Change in Tax Paid, divided by Change in Income)