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25 Cards in this Set
- Front
- Back
Inflation |
A sustained increase in the general price level 2-% on average over the business cycle |
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Consumer Price Index (CPI) |
Data collected by the ABS from capital cities for consumer good which are typical of a household budget. The products measured are known as the basket and each one is assigned a number or weighting indicating how important it is in terms of average consumer spending patterns |
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Inflation rate |
New-Old/Old x 100 |
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Underlying inflation rate |
Obtained by excluding those entries which are considered to seasonal, erratic or policy influences |
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Limits of CPI |
Outside metro area not considered Slow to reflect changes Does not reflect substitutions Does not consider quality changes |
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Demand-pull |
This occurs when aggregate demand is increasing faster than firms can expand their output. This causes the price level to rise |
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Cost-push |
The occurs when rising costs of production are passed on to consumers in the form of higher prices with increasing costs of production causing aggregate supply to decrease |
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Output effects of inflation |
Undermine business confidence Affect competitiveness Distorts pattern of resource allocation Reduces real incomes |
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Redistribution effects Winners during high inflation |
Those with a high degree of market power Net borrowers Those who own significant assets |
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Redistribution effects Losers during high inflation |
Those on fixed incomes Net lenders Those who don't own significant assets |
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Unemployment |
Refers to those people who are willing and able to work, are actively seeking work but don't currently have a job |
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Labour force |
All those aged 16 years or over but not yet retired who are either employed or unemployed |
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Labour force does not include |
Full time students Those unwilling or unable to work Those under 16 and retirees |
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Factors affecting size of the labour force |
Population Work incentives: Income tax cuts Confidence in getting a job Immigration of skills employees |
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Unemployment Rate |
Unemployed/labour force x 100 |
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Factors affecting size of labour force |
Underemployment not calculated Must work more than one our in the week to be considered employed Less than 1% households surveyed for labour force data Some may give false information |
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Frictional Unemployment |
Unemployment due to people experiencing changing economic circumstances E.g People moving between jobs |
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Seasonal Unemployment |
Unemployment due to industries experiencing seasonal downturns E.g Ski instructors |
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Structural Unemployment |
Unemployment due to changes in the structure of the economy E.g People losing jobs due to tech changes |
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Long term Unemployment |
When someone has been technically unemployed for longer than 12 months (aka hardcore) |
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Cyclical Unemployment |
Unemployment that occurs as a result of falling levels of economic activity. As AD falls, profit maximising firms revise their production plans downwards and lay off workers |
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Natural rate of Unemployment |
The level of unemployment that is consistent with zero cyclical unemployment |
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Costs of Unemployment on the economy |
Decreased confidence (decreased AD) Not maximising output (decreased SOL) Decreased disposable income Decreased economic activity Increased govt spending |
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Private costs of Unemployment |
Increased rates of physical and mental illness Increased relationship breakdowns Social stigma Increased crime rates Increased alcohol and drug abuse |
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Consequences of full employment |
Opposite to the costs of unemployment on the economy |