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Macro economic objectives (Economic Growth (Economic cycle- The periodic…
Macro economic objectives
Economic Growth
Increase in the total value of income, output or expenditure over a period of time.
GDP (Gross Domestic Product)-
measurement of Economic growth.
Total market value of all final good and services produced within an economy.
Limitation of GDP as a measure of growth
PARALELL ECONOMY- Includes economic activity unrecorded by the government, includes black market ect.
NOT REAL- Cannot use to compare to other years as disregards inflation and price changes. Can change to real GDP to compare.
Economic cycle-
The periodic fluctuations of GDP in an economy over a period of time.
Recession- Output decreases (6 month of negative growth), Unemployment rising (lack of demand for product), Inflation falling (prices may fall)
Recovery- Output increases (growth is positive), Unemployment decreasing (business gaining confidence), Inflation rising (but still be low)
Downturn- Output decreasing (growth possibly stops), Unemployment rises (rid of workers as concerned about future), Inflation slows down (demand starts to fall)
Boom- Output high (high confidence), Unemployment low (wages increase), Inflation high (increase demand)
Impact of ...on
Economic growth
Employment- high
Living standards- high
Poverty- low
Productive potential-
Inflation- high
Environment-
output > unemployment < household income> demand>
Recession
Employment- low
Living standards- low
Poverty- high
Productive potential
Inflation- low
Environment-
output< unemployment> household income< demand<
Inflation
A general increase in the average prices of goods and services.
Pros-
Cons-
decrease in the value of savings
Demand pull-
when prices are driven up by a rise in demand
Cost push-
When rising costs result in higher prices or smaller profit margins
Interest rates-
Rise in a boom: fall in a recession
HIGH INFLATION
Prices- rise
wages- less value
exports- less price competative
unemployment- low
uncertainty- low
business confidence- high
investment
Deflation
A general decrease in the average prices of goods and services
Unemployment
When someone is without work but actively seeking job.
unemployment rate= number unemployed/ labour force x 100
Types
Seasonal-
specific times of the year
Voluntary-
choices
Structural-
Sectoral-
when entire industries close down
Technological-
when production becomes more capital intensive
Frictional-
between end of education or old job and new job
Cyclical-
Follows pattern of economic growth. High in a recession low in a boom.
HIGH UNEMPLOYMENT
output- decreases
use of scarce resources- decrease
poverty- increase
government spending on benefits- increase
tax revenue- decrease
consumer confidence- decrease
business confidence -decrease
society- negative impact