Macroeconomics - Objectives

Economic growth

When a country produces more goods and services in one period than in a previous one. In other words, an increase in national output.

Short-term growth

Caused by a change in any of the components of AD or SRAS. The current real output has increased (not potential output), resulting in a higher GDP.

Long-term growth

Determined by any changes in the determinants of the LRAS (quantity and quality of the factors of production). There is an increase in potential output of an economy. More goods can be produced using all available resources.

Economic growth formula

(Real GDP2 - Real GDP1) / Real GDP 1

Impacts of economic growth

• Living standards

• Environment

• Income distribution

Unemployment

Everyone of working age who is looking for a job, but cannot find employment.

Unemployment rate

Percentage of labour force who are looking for a job but can’t find it.

Unemployment formula

(Unemployment rate / Total labour force) *100

Difficulties of measuring unemployment

• Hidden unemployment

• Discouraged workers

• Regional, ethnic, age disparities

• Informal economy

Disequilibrium unemployment

When there is a fall in deamand for labour

Natural rate of unemployment

Unemployed for structural, seasonal, or frictional reasons.

Cyclical unemployment

When AD falls, people spend less, businesses earn less, they cut off workers, unemployment increases.

OR

When SRAS falls, it causes a supply shock, and because costs of production rise (because firms aren’t earning as much), stagflation happens (high unemployment, high prices).

Frictional unemployment

When people take time off between jobs

Seasonal unemployment

When people do specific jobs that are required in specific times of the year.

Structural unemployment

When there is a mismatch between supply and demand for a particular set of labour skills.

1. When an indistry relocates, it is unlikely that people will follow. It takes time to find workers in another location, so there is temporary unemployment.

2. If labour market becomes incredibly rigid, the number of people willing to work will decrease.

Economic costs of unemployment

• Loss of GDP

• Loss of tax revenue

• Increased costs of unemployment benefits

• Loss of income to individuals

• Greater disparities in the distribution of income

Personal costs of unemployment

• Increased indebtedness

• Increased stress levels

Social costs of unemployment

• Increased crime rates

• Increased risks to health