economics test unemployment and economic growth

what is an important role of the govt?

to grow the economy

what does the economy need to ensure

that each person enjoys a good standard of living

What is economic growth measured by

GDP (gross domestic product)

What is GDP?

The value of goods and services produced by its citezens within a period of time usually one year

What is Nominal GDP

s the total value of all final goods and services produced within a country during a specific period, measured using current market prices from that period.

what is real GDP

Real GDP (Real Gross Domestic Product) is the total value of all final goods and services produced in a country, measured using constant prices from a base year. By holding prices constant, real GDP removes the effects of inflation and shows changes in actual production.

why is real gdp more reliable than nominal gdp?

This means real GDP is usually a better measure of actual economic growth, while nominal GDP reflects both changes in production and changes in prices.

what is gdp used to measure?

• Measure the size of an economy in current dollars.

• Compare tax revenues, incomes, and expenditures in current prices.

• Calculate indicators such as the GDP deflator.

Why is Nominal GDP decieving?

The physical amount of goods may not have risen but it could have increased in value due to price rises.

what is the GDP Deflator used for?

to remove the effect of the effect of price rises on GDP

what is the formula for the GDP deflator?

Nominal GDP x Price index in base year (100)

---

Price Index of the current year

Calculate the Real GDP:

2016 GDP is $800bn (price index is 100) in 2017 GDP grows to 900bn. Price index is 105.

(900 X 100) / 105 = $857bn

857-800 = $57 billion

What is economic growth?

the increase in GDP produced in a country. if economic growth takes place then GDP per capita will rise this could help with eradicating poverty.

what is the trickle down effect

wealth will travel down to the poor

what is economic development

improvement in the material living standards of citizens in a country stemming from economic growth.

when will economic development take place?

after we see a rise in GDP per capita and its the process of improving peoples well being and quality of life.

what are 5 causes of economic growth?

increase in the qty of resources avaliable to the economy

govt policy

If saving rates are high

qty of land increasing

increase in quality of resources

how does increase in the qty of resources avaliable to the economy cause economic growth

supply of labour and entreprenaurs could increase by natural increase in population size or by migration .

how does govt policy cause economic growth

govt policy could lead to and increase in the qty of labour - increases in the retirement age in NZ to 70

how does high saving rates caused economic growth?

if saving rates are high and firms borrow to invest in plant and equipment then the quantity of capital will rise

how does qty of land increasing cause economic growth?

due to the discovery of new mines or oil fields.

how does increase in the quality of resources cause economic growth?

labour: skills/education

capital: better tech

land: fertilisers, better seeds

enterprise: offering loans, training.

what is the cost of economic growth to the economy

if the economy is operating at full capacity then there will be an oppurtunity cost for achieving economic growth:

if some resources are moved to produce more capital to improve productive capacity , then there will be less resources for the production fo consumer goods.

Current consumption will be sacrificed but this will only happen in the short run since investment in capital goods will increase the production of consumer goods in the long run

what is a social cost of economic growth?

increased stress and anxiety, the economy is undergoing growth and structual changes

workers may need to learn more skills, change jobs or even move to another area.

what is an environmental cost of economic growth?

depletion of natural resources:

higher economic growth means increased use of resources. Depletion of forests, over fishing could take place

what are the 5 benefits of economic growth?

increase in the amount of goods and services

increased tax base for social welfare expenditure

rise in employment

increase in buisness confidence

increase in international prestige

how is an increase in the amount of goods and services a benefit of economic growth?

GDP rises

leads to an increased standard of living

quality and quantity of consumer goods increases

how is an increased tax base for social welfare benefit of economic growth?

ability to help the poor - higher benefits, better housing, better public schooling and better healthcare

how is a rise in employment a benefit of economic growth?

rise in GDP is caused by an increase in Aggregate demand - more workers are demanded to produce goods

Demand for labour is a derived demand so lvl of employment rises. More jobs means better standard of living less reliance of social welfare

what are the two policies that can be used to increase economic growth?

expansionary monetary policy

expansionary fiscal policy

what is the expansionary monetary policy?

reduce interest rates - people borrow and spend more: GDP rises

what is the expansionary fiscal policy?

reduce taxes, increase govt borrowings and incrase govt spendings. AD rises and GDP Rises

what is the labour force?

the number of people in the economy who are avaliable to work.

16+ who can contribute to the production of goods and services.

The labour force included both employed and unemployed

what are the four factors that the labour force size depends on

total size of the working age population (16-65yrs)

number of people who remain in full time study after leaving to uni

retirement ages for males and females

The number of women who join the labour force on a full time or part time basis.

what are some factors that can cause changes in the size of the labour force

natural changes in the population - BR is higher than DR

net migration:

positive - increase in size of labour force

negative - decrease in size of labour. force

changes to legal school leaving age or retirement age

labour force participation rate (those ages 16-64) who are actively seeking work. Students who are studying at uni will be excluded.

how do you. calculate the unemployment rate?

number unemployed / labour force x 100

what are the two methods to calculate unemployment?

The claimaint amount

Household labour force survey

what is the claimant amount?

total of all those who are recieving the unemployment benefit: those officially registered with the govt who are able to work, have not job but are looking for work.

what is the household labour force survey?

a quarterly survey of sample population which identifies those who are employed and unemployed.

what is a problem of calculating unemployment using the household labour force survey?

it chooses a random sample of homes to interview. It doesnt target people so there may be inaccuracies. Some people may not respond ot give false info.

what are some problems with calculating unemployment using the claimant amount?

sometimes a person may not recieve a benefit because their spouses income is more than the threshold to claim a benefit.

New migrants who cannot receive a benefit are unemployed but do not register with social welfare.

what are the 3 types of unemployment?

frictional - structual and cyclical

what is frictional unemployment?

this occurs when workers are between jobs.

Voluntary unemployment

Search unemployment

causal unemployment

seasonal unemployment

what is structural unemployment?

arises due to changes in the structure of the economy. Demand for some products falls and demand for others rise. Some industries expand, others contract.

it can take a variety of forms:

Regional unemployment

Technological unemployment

international unemployment

what is Voluntary unemployment:

Voluntary unemployment: workers don’t accept jobs at the current wage rate and employment conditions. If they earn less from the wage they receive in benefits they will stay unemployed

what is search unemployment

Search unemployment: Workers do not accept the first job offer but spend time looking for better jobs

what is casual employment

causal unemployment: workers who are out of work periodically, e.g actors, relief teachers.

what is seasonal employment?

seasonal unemployment: during certain periods of the year people are without a job (e.g ski instructors or workers in the tourism industry)

what is regional unemployment?

declining industries in certain places

what is technological unemployment?

people are being replaced by machines

what is international unemployemt?

workers lose their jobs since people buy cheaper imported good - decline in the textile industry in NZ - cheaper clothes from china.

what is cyclical unemployment?

caused by insufficient demand in the economy. Period of recession where demand is low. Demand for goods and services is low so demand for workers falls.

During a recession or Covid-19 wither demand falls or buisnesses cannot open. AD falls and shifts to the left

As demand for goods fall, unemployment rises.

what are some causes of unemployment?

consumers saving

reserve bank increasing interest rates

firms cutting investment in plant and equipment

lack of demand for nz exports

how is consumers saving a cause of unemployment?

it leads to decreased deamnd for goods and in turn a decrease in the demand for labour. Consumer confidence is falling - recession

how is the reserve bank increasing interest rates a cause of unemployment?

people pay more dor their mortagaes and have less to spend on other goods - lower demand for goods means lower demand for labour

what are the five costs of unemployment

cost to the unemployed person - loss of income, loss of self esteem, drugs and achohol

cost to those in work - higher taxes to pay for the dole

cost to the govt - govt has to spend more money on dole less on education etc.

cost to the economy - gdp will be lower , less compettive and productivity is lower.

cost to business investment- less people spending, less demand