Friday 16 September 2011

Unemployment (Macroeconomics)

So, unemployment - another well known phrase.

The definition of unemployment is the number of people in the workforce who are willing and able to work and actively seeking employment, but are not currently employed. It is measured in two ways: The Claimant Count and The Labour Force Survey.

The Claimant Count measures the number of people that are in receipt of unemployment related benefit. It's the cheapest way for the Government to measure unemployment, but not the most accurate method. The measure doesn't include anyone under 18 or anyone over 60, as well as many other social groups.

The Labour Force Survey is a survey of 60,000 people taken every 3 months. You are classified as unemployed if you are out of work, of working age, available to work in the next two weeks and in search of paid employment. This is more accurate than the Claimant Count and allows for European comparison as it's the method used in the rest of the continent.

The main types of unemployment are as follows:

  • Structural/Occupational - Caused by changes in an industry.
  • Frictional - Caused by people leaving their job ready to start a new one.
  • Seasonal - Caused by the seasonal nature of some jobs.
  • Cyclical - Unemployment caused by the economy, bust periods mainly in which there is low consumer demand.
  • Regional/Geographical - Job vacancies in different locations to the people actually seeking jobs.

There are many consequences of unemployment. Firstly, tax receipts for the government fall, meaning they get less income and have less available to spend on public goods. Also, unemployment leads to a fall in demand levels in the economy and because of this businesses suffer a fall in revenue and profit. The Government, during periods of unemployment, has to spend more money on welfare benefits - leaving even less money to be spent in the economy. Finally, it can lead to an overall fall in peoples living standards. 

Unemployment, in a nut shell. Thanks.

Thursday 8 September 2011

Inflation (Macroeconomics)

Inflation is a term that is thrown around a lot, so therefore it's a well known term. However, i'll still write this post to add some details and other information.

Inflation is defined as a rise in the general level of prices over a period of time. It is measured using The Harmonized Index of Consumer Prices (HICP). It measures the average weighted increase in the prices of a typical basket of goods. Inflation was previously measured using the Retail Price Index (RPI).

Inflation can be caused by either demand-pull or cost-push factors. Demand-pull inflation occurs when there has been an increase in the level of demand in an economy - basically there are too many people chasing too few goods. This is illustrated by a rightward shift of the AD curve on an aggregate demand/supply graph.

The other type of inflation, cost-push inflation, is caused by firms raising their prices because of increased wage costs, cost of raw materials or components. Basically, anything that makes production more expensive and causes the firms to raise prices. This type of inflation may be down to imported inflation, which is when we import from abroad a good that's price has risen because of inflation in the country it came from.

To summarize: Inflation is when prices of goods rise over time, caused by either demand-pull or cost-push factors. That is all, in brief.

Thanks for reading.