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
skillseducation.
Unemployment calculate as both number and percentage:
- !umber: "otal number of unemployed persons in an economy.
- Percentage:# !umber of unemployedlabor force$#%&&$
'idden unemployment - measurement of unemployment made di(cult:
- )iscouraged workers e*cluded from labor force
- +ack of distinction between full and part-time employment
- People on retraining programs e*cluded, alongside early retirees
,(cial statistics may overestimate unemployment:
- -igures don't include people working in illicit practices
Unemployment may di.er by region, gender, ethnicity, age,
occupationeduational attainment
/onse0uences of unemployment #economic$:
- +oss of real outputreal 1)P
- +oss of income for unemployed
- +oss of ta* revenue for govt.
- Unemployment bene2t costs
- /osts of social problems arising from unemployment
- 3ncome disparity
- +imited employment oppurtunities for workers
/onse0uences #personal$:
- Personal problems
- 4ocial problems
"ypes of unemployment:
- 4tructural: ,ccurs 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$, geographical changes
- -rictional: ,ccurs when workers are inbetween jobs.
- 4easonal: )emand for employment changes on a seasonal basis due
to need variations.
- /yclical: ,ccurs during downturn of business cycle, arises from low
5)fall in real 1)P
10.2:
)e6ation: 4ustained decrease in general price level, deals with average
prices.
)isin6ation: )ecrease in the rate of in6ation.
/onsumer Price 3nde*:
7easure of cost of livingcost of goods and services purchased by
typical household in an economy, and compares the value of a basket
of goods and services in % year to ones in a base year.
3n6ationde6ation are measured as a percentage change in the value
of basket from one year to another. Positive change - in6ation,
negative - de6ation.
Problems:
)i.erent in6ation rates for di.erent earners
8egionalcultural changes in in6ation
/hanges in consumption patterns due to consumer substitutions
when relative to price change.
/hanges in consumption patterns due to increased use of
discounts
/hanges in consumption patterns due to introduction of new
products
Product 0uality changes
3ntl. comparisons
/omparability over time
/ore rate of in6ation: 7easured with /P3 that doesn't incorporate
foodenergy products with highly volatile prices.
Producer Price 3nde* #PP3$: 4everal indices of prices received by
producers at various stages in production process.
Consequences of Infation:
+osers:
People who get 2*ed wages
People getting wages rising slower than in6ation rate
/ash holders
4avers
/reditors
9inners:
:orrowers
Payers of 2*ed wages
Payers of wages increasing slower than in6ation rate
Behavior Encourage b! Infation:
4pend
:orrow
"ypes of 3n6ation:
)emand Pull: ;*cess of 5) over 54 at full employment level on output,
caused by an increase in aggregate demand.
/ost-Push: /aused by fall in aggregate supply, resulting from increase in
wagesoutputs.
9hy de6ation is rare:
9orker wages don't normally fall
+arge 2rms may fear price wars
-irms want to avoid incurring menu costs
1overnments keen to avoid de6ation
/onse0uences of )e6ation:
8edistribution e.ects
Uncertainty
7enu /osts: /osts for 2rms printing new menuadsposters
8isk of de6ationary spiral with cyclical unemployment
8isk of bankruptcy2nancial crisis
Ch"11: Macroeconomic #bjectives:
;conomic growth e*pressed as:
Percentage change in real 1)P over time
Percentage change in real 1)P per capita over time
;conomic growth under the PP/ model:
3ncreases in actual output
3ncreases in production possibilities
"ypes of capital:
Physical - standard type
'uman - skills, knowledge, abilities, health of workers
!atural - everything falling between land and resources
/apital and economic growth:
<ualitiative0uantitative improvements in human capital prove to increase
economic growth
<uantitative approach not very bene2cial towards labor, but 0uality
improvements prove to increase economic growth
;conomic growth compenents:
8ole of marketable commodities
8ole of ecological goodscommon access resources
Productivity: <uantity of output produced for each hour of work for the
working population.
3mprovements in 0uantity0uality of physical capital
3mprovements in 0uality of labor
3mprovements in 0uality0uantity of ecological resources
3n order to get long term growth, some consumption must be sacri2ced to
make investments which would lead to new capital in the future.