3.3 Macroeconomic Objectives

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24 Terms

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Economic growth

an increase in real GDP over time

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Actual output

the current level of real GDP in the economy

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Potential output

the level of real GDP that an economy can reach at the natural rate of unemployment

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Short term growth

caused by changes to any of the components of aggregate demand

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Long term growth

occurs when there is an improvement in the quantity and/or quality of a country’s factors of production

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Employment

the use of factors of production in the production process, usually applied on labour resources

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Unemployment

occurs when people who are willing and able to work and actively seeking for work are without work at the current wage rate

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Frictional unemployment

occurs when people are temporarily unemployed as they move between jobs

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Seasonal unemployment

caused by changes in the demand for labour during particular times of the year

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Structural unemployment

caused by changes in the sector or the structure of the economy

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Cyclical unemployment

occurs during the downturn of the business cycle, when the economy is in a recessionary gap

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Natural rate of unemployment

the unemployment rate when the economy is producing at the full employment level of output

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Labour market

interaction between people and employers who are willing and able to work and hire at various wages

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Hidden unemployment

occurs when people are technically unemployed but excluded from the official measure of unemployment

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Voluntary unemployment

those of working age who choose not to actively seek employment

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Underemployment

when the labour resources in an economy are being underutilised

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Inflation

the sustained increase in the general price level of an economy over time

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Demand pull inflation

inflation caused by excess demand in the economy

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Cost push inflation

inflation caused by increases in the costs of production in an economy

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Deflation

the sustained decrease in the general price level of an economy over time

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Disinflation

when there is a fall in the rate of inflation, meaning that price levels are still rising but at a slower rate

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Consumer Price Index

a weighted index of the average prices of goods and services consumed by the typical household

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Menu costs

costs to firms for updating price lists and delivering the information to customers

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Shoe leather costs

the cost of time and effort consumers spend in attempt to counteract the effects of inflation