Macro economics dump

Define real wage

• Value of wages adjusted for inflation

• Helps measure true purchasing power of individuals

Define real GDP

• The total value of all goods and services produced in a given period of time adjusted for inflation

Define productivity

• Measure of efficiency with which inputs are transformed into outputs

Explain how improving productivity should lead to rising real GDP [9marks]

→ Point 1 :

• Productivity may increase due to investment by firms in either human or physical capital

• Such as advanced machinery or supply side reforms such as worker training

• This in turn boosts productivity as more output is produced per unit of input

• Which reduces costs of production

• Lower unit costs increase SRAS as firms in the economy are willing and able to supply more output at every price level

• Conveyed by rightward shift in sras / y1-y2 shows the increase in output in the economy thus depicting increased GDP

→ Point 2 :

• Lower unit costs of production as a result of enhanced productivity

• Can translate into firms maintaining lower prices relative to foreign competitors

• Amplifies international competitiveness

• Increasing export volume

• X is a component of AD thus shifts the AD curve right

• Exemplifying an increase in real GDP rooted in increased productivity

Evaluate the view that free market supply side reforms to labour markets are beneficial to the UK economy. [25 marks]

→ Introduction:

• Supply side reforms: Are policies aimed to increase productivity and efficiency in the economy to enable an increase in productive potential

• Free market supply side policies are designed to encourage economic growth via the private sector rather than through the state

• Examples of such polices implemented in the labour maet are trade union reforms, deregulation and flexible working practices

→Point 1: Lower unemployment due to flexibility

• Supply side policies that “create and maintain flexible working practises” consist of reducing regulations on labour contracts

• Enables firms to offer varied working hours, zero hour contracts and freelance arrangements

• This guaranteed flexibility erects an incentive to participate in the labour market as it increases the scope of

→ Point 2 : Increased ecnomic groeth due to risng productivity

→ Point 3 :Insufficient growth in wages