Macroeconomic Objectives

Unemployment

The condition where workers of working age and who are actively seeking work are unable to find a job

Labor force

Employed population + unemployed population

Economic growth

Growth in real GDP

Actual growth

Increase in real GDP

Potential growth

Increase in the maximum productive capacity of the economy

Productivity

Output per hour of work

Consequences of economic growth (5)

• impacts on living standards

• Unemployment

• Inflation

• Distribution of income

• Sustainability

Inflation

Sustained increase in GPL

Deflation

Sustained decrease in GPL

Consumer price index

A measure of the cost of living of the average household by tracking the prices of a fixed basket of goods commonly bought by households

Limitations in using CPI

• atypical households

• Time lags

• Volume purchased

• Different rates of inflation for different income earners

• Different rates of inflation depending on regional/cultural factors

• Changes in consumption patterns due to consumer substitutions when relative price changes

• Changes in consumption patterns due to the increasing use of discounts at stores and sales

• Changes in the consumption patterns due to the introduction of new products

• Changes in product quality

• International comparisons

• Comparability over time

Consequences of high inflation (9)

• fall in income and purchasing power

• Redistributive effects

• Uncertainty

• Menu costs

• Money illusion

• Export competitiveness

• Savings

• Economic growth

• Resource allocation

Consequences of unemployment (5)

• Loss of real output/GDP

• Loss of income for unemployed workers

• Worsening of government budget: unemployment benefits

• More unequal distribution of income

• Greater difficulty finding employment in the future

Personal and social costs of unemployment

• personal: divorce, suicide, psychological issues

• Social: crime rates

Natural rate of unemployment

Structural + frictional + seasonal

Structural unemployment

A type of unemployment that occurs as a result of skills mismatch, geographical location of industries and jobs, and labor market rigidities

Frictional unemployment

A type of unemployment that occurs when workers are between hobs

Seasonal unemployment

A type of unemployment that occurs when the demand for labor in certain industries change on a seasonal basis due to variations in needs

Cyclical

A type of unemployment that occurs during the downturns of the business cycle, when the economy is in a recessionary gap

Macroeconomic objectives

• low and stable inflation

• Continued economic growth

• Low unemployment

• Sustainable level of debt