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THEME 2 - Coggle Diagram
THEME 2
UNEMPLOYMENT
Someone who is of working age, willing and able to work, actively seeking work but not employed
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HIDDEN UNEMPLOYMENT
Disgusied unemployment, people who do not have work but are not counted in reports
CAUSES
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Rise in self-employment, people working on zero hour contracts and agency work
POLICIES
Governments can increase public spending or cut taxes to increase AD, which can stimulate economic growth and increase employment. Much depends on the size of the fiscal multiplier
Central banks can lower interest rates, which can encourage businesses and consumers to spend and invest more, boosting aggregate demand and employment
Lower interest rates may lead to a currency depreciation which can lift export sales, profits and jobs
Weaker exchange rate means imports are more expensive for domestic consumers, leading to more demand for domestic products and services. This is expenditure switching
Lowering taxes on businesses can increase profits and investment leading to more hiring and increased productivity
Removing unnecessary regulations can reduce costs for businesses and encourage innovation and investment which ultimately creates new jobs
Making it easier to hire and fire workers can improve labour market flexibility and reduce structural unemployment
Investing in education and training can improve the skills of the workforce, increase their productivity and improve occupational mobility
UNDEREMPLOYMENT
Underemployment occurs when people are counted as looking for an extra job, or actively searching for a new job with longer hours to replace their current job, prefer to work longer hours in their present job and also means workers are under-utilised in terms of their ability, formal qualifications and experience
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ECONOMIC INACTIV ITY
People of working age who are not in work, not looking for a job and haven’t in the last 4 weeks
Some reasons could be students in education, carers, illnesses, retired people and discouraged workers
SEASONAL UNEMPLOYMENT
Seasonal workers may be without paid jobs due to the time of the year when there are seasonal changes in demand, production and employment, season but then let go after
FRICTIONAL UNEMPLOYMENT
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Some amount of frictional unemployment in the labour market, regardless of the stage of a country’s business cycle, helping provide a pool of labour for employers
Can be reduced by making information on jobs more available and making job search more affordable via cheaper transport or subsidies
STRUCTURAL UNEMPLOYMENT
Caused by lack of suitable skills for jobs available, a result of de-industrialisation or other structural changes
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CYCLICAL UNEMPLOYMENT
Involuntary unemployment due to a lack of AD for goods and services, also known as Keynesian unemployment
REAL WAGE UNEMPLOYMENT
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Employers are unwilling to hire workers at the current wage level as they believe the workers aren’t worth that much
Can occur when labour supply exceeds labour demand, or when there is a surplus of workers in a certain industry
CONSEQUENCES
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Leads to lost output, slower growth and potential reduction in a country’s potential trend rate of growth
Large fiscal budgetary costs for the government with higher welfare spending and reduced tax revenues
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INFLATION
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HYPERINFLATION
A phase of extremely rapid inflation nearly always the result of mass money printing by the government wit money as an asset ending up as worthless. It is also associated with economies where there has been a collapse in real output
DEFLATION
A sustained period where the general price level is falling, meaning a weighted basket of goods and services is becoming less expensive over time
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ASSET PRICE DEFLATION
When the valuations of assets such as bonds, housing and equities fall over a sustained period, which often happens at the end of a financial bubble
CONSEQUENCES
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Can make more competition, but can increase unemployment and decrease economic growth
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DISINFLATION
A fall in the rate of inflation but not sufficient to bring about price deflation . During a period of disinflation consumer prices rise but at a slower rate
STAGFLATION
Stagnant growth, rising unemployment and high and rising inflation
CAUSES
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DEMAND-PULL
Phase of accelerating inflation which arises from a rapid growth in AD. Occurs when economic growth is too fast. Businesses can take advantage of high demand by raising their prices to widen profit margins
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CAUSES
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Can be causes by economic growth, low interest rates and increased money supply
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FUNCTIONS OF MONEY
MEDIUM OF EXCHANGE
Money is any asset widely acceptable as a medium of exchange. It facilitates transactions between buyer and seller
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UNIT OF ACCOUNT
A nominal unit of measure used to value products, assets, debts, incomes and spending
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CONSEQUENCES
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Governments will have to offer a higher yield on its bonds to entice investors to lend it money as investors will want to be compensated for inflation risk eroding investment value
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A high relative rate of inflation can reduce competitiveness which will lower demand for the country’s exports
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MACROECONOMIC OBECTIVES
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Price stability, maintaining low, positive inflation
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Stable external trade, balance of payments
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GROSS DOMESTIC PRODUCT
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NOMINAL GDP
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Total value of all goods and services produced within a country’s borders during a specific time period, but doesn’t account for the changes in prices that may occur during that time
GDP PER CAPITA
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Provides a way to compare the economic performance of different countries while considering their population sizes
BALANCE OF PAYMENTS
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CURRENT ACCOUNT
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Primary income measures the monetary flows generated from owning of cross-border financial assets, known as investment income. It represents the yields, from UK investments abroad and that of foreign owned investment in the UK, it also includes pay for cross-border workers
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FINANCIAL ACCOUNT
Includes transactions that result in a change of ownership of financial assets and liabilities between a country’s residents and non-residents
Includes net balance of FDI, of portfolio investment flows, balance of banking flows and changes to the value of a country’s reserves of gold and foreign currency
CAPITAL ACCOUNT
Capital transfers involve the transfer of assets without any exchange of economic value, such as debt forgiveness=
Transfers can be between governments, institutions or individuals
Non produced, non financial assets include the sales and purchase of non-financial assets like patents as well as transfer of natural resources and land ownership of countries
CONSUMER PRICE INDEX
CPI is a measure that tracks changes in the average price level of a basket of goods and services purchased by a typical household over time
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CPI is a weighted price index based on the spending patterns of households on a wide range of goods and services
LIMITATIONS
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Changing quality of goods and services, a rise in the quality of products may not be easily reflected in the prices we pay
Time lags, it is slow to respond to new products in markets
RETAIL PRICE INDEX
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Tracks inflation and adjusts prices, wages and pensions
Includes housing costs, unlike CPI
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PURCHASING POWER PARITY
The idea that items should cost the same in different countries, based on the exchange rate at that time
Measures how many units of one country’s currency are needed to buy the same basket of goods and services as can be bought with a given amount of another currency
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