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MACROECONOMIC AIMS AND PROBLEMS - Coggle Diagram
MACROECONOMIC AIMS AND PROBLEMS
UNEMPLOYMENT :silhouettes:
How is unemployment represented?
UNEMPLOYMENT RATE
LABOUR FORCE PARTICIPATION RATE
What are the types of unemployment?
FRICTIONAL
(time lag for workers looking for the right jobs and employers looking for the right labour)
better job information
improvements in the employment exchange services
STRUCTURAL
(mismatch of skills and job vacancies
WHY?
Change in conditions of supply
TECHNOLOGICAL/OCCUPATIONAL IMMOBILITY
REGIONAL
movement of industries to different location
Change in pattern of demand
upgrading the skills of the workforce
subsidies to manage the change in economic structure
(supply side policies)
CYCLICAL
(alternating booms and slumps in economic activity)
DEMAND MANAGEMENT e.g. expansionary monetary and fiscal policies
SUPPLY MANAGEMENT policies used alongside e.g. reducing structural rigidities
SEASONAL
(annual weather cycle/traditions)
work sharing programme
rearranging the production process/ creating other lines of production
price system
REAL WAGE UNEMPLOYMENT
(real wages are forced above the market clearing level)
(wage councils, trade unions)
wages set at levels that reflect the dd/ss conditions
What is unemployment?
The number of people of the legal working age who are willing and able to work but are unable to find suitable employment.
NOT INCLUSIVE OF: voluntary unemployment, underemployment
INCLUSIVE OF: involuntary unemployment
So what?
B. FISCAL costs to the government
C. LOSS of productive capacity
A. LOSS of output of goods and services and hence welfare loss
D. Social impact: unrest, lowering SOL
What can we do?
Does it differ between countries?
IN LESS DEVELOPED COUNTRIES..likely to have frictional, seasonal, imported cyclical unemployment and demand deficient
IN DEVELOPED COUNTRIES...likely to have structural, technological and cyclical
IN SINGAPORE!
increased threat of cyclical unemployment
ECONOMIC GROWTH :checkered_flag:
What are the different types of growth?
ACTUAL GROWTH
(increase in AD/ SRAS) OR movement outwards of the production point
POTENTIAL GROWTH
(increase in LRAS) OR outward shift of the PPF
INCLUSIVE GROWTH
economic growth that creates opportunity for all segments of the population and distributes the dividends of increased prosperity
enhances the potential of the economy
BROAD-BASED progress
Measured through three pillars, each with four indicators
Growth and Development
Inclusion
Inter-generational Equity and Sustainability
What is ECONOMIC GROWTH?
an increase in the real national output of the country over a period of time
SUSTAINABLE GROWTH is the rate of growth that can be maintained in the long term without creating other significant economic problems.
ECONOMIC DEVELOPMENT
economic growth accompanied by the qualitative improvement in SOL
growth is inclusive (so there is overall improvement in SOL)
cannot be illustrated diagrammatically
must be GROWTH before development
How can we measure economic development?
Economic indicators, i.e. change in real GDP per capita
However...does not include non-marketed subsistence production and incorporate welfare and income distribution concerns
Non-Economic Indicators, i.e. PQLI, MEW, HDI
How can we measure economic growth?
Growth rates, i.e. REAL GDP
NOMINAL GDP is not suitable as it can rise even when the quantity of output produced falls
What causes economic growth?
SUPPLY SIDE FACTORS
Increase in the level of technology
Increase in quality of FOP
Labour productivity
Land productivity
Capital efficiency
Increase in quantity of FOP
Labour Force
Availability of natural resources
Capital stock: investment
DEMAND SIDE FACTORS
STRUCTURAL FACTORS
Cultural/social/political environment
Legal institutions
EXTERNAL FACTORS
What can we do?
Fiscal policy (incentives, government expenditure)
Investment
Technological improvements
Monetary policy (influencing interest rates/money supply/exchange rates)
Aggregate supply side policies (human capital/infrastructure/R&D)
So what?
BENEFITS!
Increased levels of consumption, hence higher SOL
Helps avoid other macroeconomic problems: actual growth
REDUCES unemployment
Enables easier redistribution of incomes with higher income
Society can afford to care more for the environment
COSTS
Opportunity cost of growth (less current consumption)
Environmental costs/depletion of non-renewable resources
Effects on income distribution (What industry? How many sources of income?
Effects on employment: workers may find themselves
STRUCTURALLY UNEMPLOYED
Social effects (becoming more industrialised)
Impact on BOP
differs for developed and developing countries: may be a necessity for developing countries while dependent on spare capacity for developed countries
NOT the same as growth in a nation's welfare because of the externalities and exclusivity of growth.
