3.3 Macroeconomic Objectives

Economic growth

an increase in real GDP over time

Actual output

the current level of real GDP in the economy

Potential output

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

Short term growth

caused by changes to any of the components of aggregate demand

Long term growth

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

Employment

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

Unemployment

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

Frictional unemployment

occurs when people are temporarily unemployed as they move between jobs

Seasonal unemployment

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

Structural unemployment

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

Cyclical unemployment

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

Natural rate of unemployment

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

Labour market

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

Hidden unemployment

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

Voluntary unemployment

those of working age who choose not to actively seek employment

Underemployment

when the labour resources in an economy are being underutilised

Inflation

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

Demand pull inflation

inflation caused by excess demand in the economy

Cost push inflation

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

Deflation

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

Disinflation

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

Consumer Price Index

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

Menu costs

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

Shoe leather costs

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