notes - ch 10 & 11 (excluding inequality)
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Chapter 10: Macroeconomic objectives I:
Unemployment: People of working age who are actively looking for a job, but aren't employed.
Underemployment: People of working age with part-time jobs when they would rather work full time, or with jobs which don't make use of their full skills/education.
Unemployment calculate as both number and percentage:
- Number: Total number of unemployed persons in an economy.
- Percentage:( Number of unemployed/labor force)(100)
Hidden unemployment - measurement of unemployment made difficult:
- Discouraged workers excluded from labor force
- Lack of distinction between full and part-time employment
- People on retraining programs excluded, alongside early retirees
Official statistics may overestimate unemployment:
- Figures don't include people working in illicit practices
Unemployment may differ by region, gender, ethnicity, age, occupation/eduational attainment
Consequences of unemployment (economic):
- Loss of real output/real GDP
- Loss of income for unemployed
- Loss of tax revenue for govt.
- Unemployment benefit costs
- Costs of social problems arising from unemployment
- Income disparity
- Limited employment oppurtunities for workers
Consequences (personal):
- Personal problems
- Social problems
Types of unemployment:
- Structural: Occurs due to changes in demand for particular types of labor skills, labor market rigidities (factors preventing forces of supply and demand from acting in labor market), geographical changes
- Frictional: Occurs when workers are inbetween jobs.
- Seasonal: Demand for employment changes on a seasonal basis due to need variations.
- Cyclical: Occurs during downturn of business cycle, arises from low AD/fall in real GDP
10.2: Deflation: Sustained decrease in general price level, deals with average
prices. Disinflation: Decrease in the rate of inflation. Consumer Price Index:
Measure of cost of living/cost of goods and services purchased by typical household in an economy, and compares the value of a basket of goods and services in 1 year to ones in a base year. Inflation/deflation are measured as a percentage change in the value of basket from one year to another. Positive change - inflation, negative - deflation.
Problems: Different inflation rates for different earners Regional/cultural changes in inflation Changes in consumption patterns due to consumer substitutions
when relative to price change. Changes in consumption patterns due to increased use of
discounts Changes in consumption patterns due to introduction of new
products Product quality changes Intl. comparisons Comparability over time Core rate of inflation: Measured with CPI that doesn't incorporate
food/energy products with highly volatile prices. Producer Price Index (PPI): Several indices of prices received by
producers at various stages in production process. Consequences of Inflation:
Losers: People who get fixed wages
People getting wages rising slower than inflation rate Cash holders Savers Creditors
Winners: Borrowers Payers of fixed wages
Payers of wages increasing slower than inflation rate Behavior Encouraged by Inflation:
Spend Borrow
Types of Inflation: Demand Pull: Excess of AD over AS at full employment level on output,
caused by an increase in aggregate demand. Cost-Push: Caused by fall in aggregate supply, resulting from increase in
wages/outputs.
Why deflation is rare: Worker wages don't normally fall Large firms may fear price wars Firms want to avoid incurring menu costs Governments keen to avoid deflation
Consequences of Deflation: Redistribution effects Uncertainty Menu Costs: Costs for firms printing new menu/ads/posters Risk of deflationary spiral with cyclical unemployment Risk of bankruptcy/financial crisis
Ch-11: Macroeconomic Objectives: Economic growth expressed as:
Percentage change in real GDP over time Percentage change in real GDP per capita over time
Economic growth under the PPC model: Increases in actual output Increases in production possibilities
Types of capital: Physical - standard type Human - skills, knowledge, abilities, health of workers
Natural - everything falling between land and resources Capital and economic growth:
Qualitiative/quantitative improvements in human capital prove to increaseeconomic growth
Quantitative approach not very beneficial towards labor, but quality improvements prove to increase economic growth
Economic growth compenents: Role of marketable commodities Role of ecological goods/common access resources
Productivity: Quantity of output produced for each hour of work for the working population. Improvements in quantity/quality of physical capital Improvements in quality of labor Improvements in quality/quantity of ecological resources
In order to get long term growth, some consumption must be sacrificed to make investments which would lead to new capital in the future.