Ch 8 econ problems
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This document summarizes macroeconomic problems of inflation and unemployment. It defines inflation and different types of inflation such as demand-pull and cost-push inflation. It also discusses how inflation is measured using CPI, PPI and HPI. The effects of inflation on different groups are explained. Unemployment is defined and different types like frictional, structural and cyclical unemployment are outlined. The effects of unemployment at the individual, family and country level are briefly described.
Ch 8 econ problems
- 1. CHAPTER 8 :CHAPTER 8 : MACROECONOMICMACROECONOMIC PROBLEMSPROBLEMS 1. Inflation a) Types b) Effects 2. Unemployment a) Types b) Effects
- 2. Inflation Defn : continuous ↑ in general P How to measure : use CPI, PPI, HPI To measure CPI : depends on weightage of baskets of goods if essential goods, weightage ↑ Inflation rate = {(CPI1 – CPI0) / CPI0} % Inflation ↑ leads to ↓ value of money Types dd pull inflation cost push inflation
- 3. Inflation How to measure CPI PPI HPI Misc g & s Food Beverages & tobacco Clothing & footwear Gross rent, fuel & power Furniture & furnishing, and household equipment and operation Medical care & health expenses Transport & communication Recreation, entertainment, education and cultural services Machinery & transport equipment Food & live animals Crude materials Mineral fuels, lubricants & related material Animal, vegetable, oils & fats Manufactured goods Detached Terraced Semi detached High rise unit
- 4. Dd Pull Inflation Excess AD over AS Usually happen during peak (FE = AS) dd > ss, P↑ Causes : AD↑ coz ↑ in C, I, GS, NX Ms ↑ because of r ↓ Fisher’s theory : MV = PT M : Ms V : Velocity P : General P T : Total transaction
- 5. Cost Push Inflation Too much money chasing too few goods P↑ because cost of prodn ↑ Usually under utilized resources Causes higher wage rate larger profit mark up Expensive imported raw & intermediate material ↑ tax ss shock due to ∆ in weather or unforseen circumstances Can lead to hyperinflation thru wage-price spiral
- 6. Diagram (Inflation) AD1 AD2 Y1 Y P P1 P2 AS1 AS0 AD Y P P0 P1 Y0Y1 Dd pull inflation Cost push inflation AD0 P0 Y0 AS
- 7. Effects Of Inflation 1) Gainers & losers from inflation Gainers – debtors, bus, s/holders, property owner Losers – creditors, savers, fixed income 2) Saving depreciated in value 3) Prodn of goods ↑ 4) Trade union & wage spiral 5) Deficit in balance of trade 6) Depn in ER
- 8. Unemployment Defn : people under labor forces but being unemployed Labor forces : age 15 – 64 Willing & able to work Includes school leavers & pensioners Unemployed – voluntary & involuntary eg : job losers, job leavers, laid off either permanently or temporarily, retirees, new entrants, reentrants Not in L force – unwilling to do work eg : handicaps, old man, sickbed, housewives, students, prisoners
- 9. Unemployment Unemploy rate = (no of unemp/ L forces) % L forces participation rate = (L force / adult population) % Population < 15 yrs 15 – 64 yrs > 64 yrs L forces Not in L forces employed Non-employed
- 10. Types Of Unemployment 1) Frictional Temporary out of work To suit their taste & skills 1) Structural ∆ in structural & technology L need extra skills & experience 1) Cyclical – due to recession @ depression 2) Disguised (underemployment) Overstuffed with unnecessary additional workers High skills level in low wage jobs Early retired 1) Seasonal – due to ∆ in season : geog & non-geog
- 11. Effects Of Unemployment 1) Indv – may lead to social problems Loss self esteem Depresses Mentally disturbed 1) Family – leads to family problems Loss Y Have to ↓ expenses 1) Country Social & eco cost Tax rev ↓ GNP gap (potential vs actual)