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Economic growth, Inflation, Unemployment - Coggle Diagram
Economic growth
Recession
- Loss of output and welfare
- Increased unemployment
- Strain on govt budget
- Negative outlook and pessimism
- Deflationary spiral
Sustainable growth
- Growth rate sustained for long term with no other significant economic problem
- Productive capacity must increase
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Causes
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Demand side factors
- Does not directly affect productive capacity
-Affect actual growth in short run
Structural factors
- favourable cultural, social and political environment would promote growth
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Inclusive growth
- Create opportunity for all segments of population and distributes the dividends of increased prosperity fairly across society
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Benefits
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Enable easier redistribution of income
- Can receive more taxes from the rich
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Costs
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Effects on income distribution
- Different industries rise at different rates hence income rise us also different
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Inflation
Effects
Investments
- Severe inflation encourages diversion of effort towards speculation away from productive activity
- Mild inflation stimulates investment as the rates of returns to investment increases
Net Exports
- Depends on relative inflation rate
Allocative efficiency
- Resources diverted to products whose prices are rising faster than others
Welfare
- Reduced purchasing power
- Increased stress from working longer hours
Menu cost of inflation
- Cost of constantly revising price list
Redistributive effect
- Nominal income of fixed income receivers does not rise in line with inflation
- Household of flexible income receivers may spurt ahead as real incomes are enhanced
- The real value or purchasing power of saving deteriorates (For savers)
-Debtors vs creditors
Shoe leather cost
- Time and effort that people take to counteract the effects of inflation
Causes
Demand Pull Inflation
- Excess AD ear classicle range
Cost Push inflation
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Increase in structural rigidities
- Cannot have efficient reorganisation of resources to meet changes in demand
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Deflation
Causes:
- Demand causes
- Cheaper imports
- Currency appreciation
- Discovery of new resources
- Technological advances
Effects:
- Economic growth via investments
- External stability
- Resource allocation
- Welfare
- Redistribution (Downward spiral of deflation)
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Unemployment
Types
Frictional
- When people leave their jobs
- When there are new entrants in the market (Imperfect information causes time lag and thus cannot be matched up immediately)
- Companies abstain from hiring because they don't think anyone is qualified to work in that position (Imperfect information)
Structural
- Mismatch of skills and job vacancies due to a change in the structure of the economy
- Old skill sets no longer relevant
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Change in aggregate condition of supply
- Technological unemployment (Doing away with certain jobs/ creating new jobs that workers are incapable of doing)
Cyclical (Demand deficient)
- Associated with business cycle and can be unpredictable and irregular
Seasonal
- Results from seasonal fluctuations in the level of economic activity
Real wage
- When reals wage for jobs are forced above market clearing level (unions)
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