Facts, Population, GDP, Inflation, Unemployment, Business (2023)

FAQs

What is the relationship between GDP inflation and unemployment? ›

As aggregate demand increases, real GDP and price level increase, which lowers the unemployment rate and increases inflation.

Unemployment can be classified as frictional, cyclical, structural, or institutional.

A macroeconomic policy framework conducive to growth can be characterised by five features: a low and predictable inflation rate; an appropriate real interest rate; a stable and sustainable fiscal policy; a competitive and predictable real exchange rate; and a balance of payments that is regarded as viable.

Three major macroeconomic concerns are the unemployment level, inflation, and economic growth.

One version of Okun's law has stated very simply that when unemployment falls by 1%, gross national product (GNP) rises by 3%. Another version of Okun's law focuses on a relationship between unemployment and GDP, whereby a percentage increase in unemployment causes a 2% fall in GDP.

More jobs and higher wages increase household incomes and lead to a rise in consumer spending, further increasing aggregate demand and the scope for firms to increase the prices of their goods and services. When this happens across a large number of businesses and sectors, this leads to an increase in inflation.

Economists primarily focus on three types of unemployment: cyclical, frictional, and structural.

GDP = private consumption + gross private investment + government investment + government spending + (exports – imports). GDP is usually calculated by the national statistical agency of the country following the international standard.

SEVEN ECONOMIC RULES: A set of seven fundamental notions that reflect the study of economics and how the economy operates. They are: (1) scarcity, (2) subjectivity, (3) inequality, (4) competition, (5) imperfection, (6) ignorance, and (7) complexity.

What are the 4 main areas of macroeconomics? ›

Macroeconomics focuses on the performance of economies – changes in economic output, inflation, interest and foreign exchange rates, and the balance of payments.

So, what does macroeconomics study? The five principles are: economic output, economic growth, unemployment, inflation and deflation, and investment.

Macroeconomics focuses on three things: National output, unemployment, and inflation.

The calculation of a country's GDP encompasses all private and public consumption, government outlays, investments, additions to private inventories, paid-in construction costs, and the foreign balance of trade. Exports are added to the value and imports are subtracted.

If 'potential GDP' is growing rapidly, actual output can also continue to grow rapidly without intensifying pressures on resources.” Translation: if growth is higher, inflation is lower.

There are societal costs of high unemployment. Governmental costs go beyond the payment of benefits to the loss of the production of workers, which reduces the gross domestic product (GDP). Unemployment affects not on the individual but also their spouses, partners, and children.

Monetary policy primarily involves changing interest rates to control inflation. Governments through fiscal policy, however, can assist in fighting inflation. Governments can reduce spending and increase taxes as a way to help reduce inflation.

To ease inflation, the Federal Reserve works to reduce the amount of money in the economy by raising the Federal Funds rate, which is the interest rate at which commercial banks lend to each other overnight.

What are 4 factors that affect unemployment? ›

Job creation and unemployment are affected by factors such as aggregate demand, global competition, education, automation, and demographics. These factors can affect the number of workers, the duration of unemployment, and wage rates.

Low consumer demand creates cyclical unemployment. Companies lose too much profit when demand falls. If they don't expect sales to pick up anytime soon, they must lay off workers. The higher unemployment causes consumer demand to drop even more, which is why it's cyclical.

Communities with high unemployment rates are more likely to have limited employment opportunities, low-quality housing, fewer available recreational activities, limited access to public transportation and public services and underfunded schools.

A real-life example of structural unemployment is the US labour market after the 2007–09 global recession. While the recession caused cyclical unemployment initially, it then translated into structural unemployment. The average unemployment period increased significantly.

Unemployment adversely affects the disposable income of families, erodes purchasing power, diminishes employee morale, and reduces an economy's output.

What Are the Stages of an Economic Cycle? An economic cycle, or business cycle, has four stages: expansion, peak, contraction, and trough.

There are three main types of unemployment – cyclical, structural and frictional unemployment.

Unemployment Rate: the number of unemployed divided by the labor force, expressed as a percentage.

Economists use many abbreviations. One of the most common is GDP, which stands for gross domestic product. It is often cited in newspapers, on the television news, and in reports by governments, central banks, and the business community.

It takes into account four core economic factors including government spending, consumption, net exports, and business investments. There are different types of GDP such as nominal, real, and per capita.

What is GDP in simple terms? ›

The GDP is the total of all value added created in an economy. The value added means the value of goods and services that have been produced minus the value of the goods and services needed to produce them, the so called intermediate consumption.

The different kinds of economic systems are Market Economy, Planned Economy, Centrally Planned Economy, Socialist, and Communist Economies. All these are characterized by the ownership of the economics resources and the allocation of the same.

National economic goals include: efficiency, equity, economic freedom, full employment, economic growth, security, and stability. Economic goals are not always mutually compatible; the cost of addressing any particular goal or set of goals is having fewer resources to commit to the remaining goals.

Economists, however, identify six major functions of governments in market economies. Governments provide the legal and social framework, maintain competition, provide public goods and services, redistribute income, correct for externalities, and stabilize the economy.

So, an economy works by creating a network of markets composed of buyers and sellers. These economic markets allocate scarce resources among the players within that market. When we think of a country's economy, we're usually thinking in terms of macroeconomics.

What is the GDP Price Index? A measure of inflation in the prices of goods and services produced in the United States. The gross domestic product price index includes the prices of U.S. goods and services exported to other countries. The prices that Americans pay for imports aren't part of this index.

Natural unemployment contains three components: structural unemployment, surplus unemployment, and frictional unemployment. Zero unemployment is unattainable because employers would raise wages first. The 2008 financial crisis did not offset the long-term trends that are lowering the U.S. natural rate of unemployment.

The fundamental problem in economics is the issue with the scarcity of resources but unlimited wants. Economics has also pointed out that a man's needs cannot be fulfilled. The more our needs are fulfilled, the more wants we develop with time. By definition, scarcity implies a limited quantity of resources.

In an inflationary environment, unevenly rising prices inevitably reduce the purchasing power of some consumers, and this erosion of real income is the single biggest cost of inflation. Inflation can also distort purchasing power over time for recipients and payers of fixed interest rates.

What are the six key macroeconomic factors? ›

Definition: The law of demand states that other factors being constant (cetris peribus), price and quantity demand of any good and service are inversely related to each other. When the price of a product increases, the demand for the same product will fall.

Macroeconomic factors include inflation, fiscal policy, employment levels, national income, and international trade.

Economic factors include tax rates, exchange rates, inflation, labor supply and demand, wages, laws and policies, government activities, and recessions. In terms of development, some of the top economic factors include education and training, natural resources, power, transportation, and communication.

Gross Domestic Product (GDP), a widely used indicator, refers to the total gross value added by all resident producers in the economy. Growth in the economy is measured by the change in GDP at constant price.

Annual GDP figures are often considered the best indicators of the size of the economy. Economists use two different types of GDP when measuring a country's economy. Real GDP is adjusted for inflation, while nominal GDP is not adjusted for inflation. An increase in GDP indicates that businesses are making more money.

A positive difference in nominal minus real GDP signifies inflation and a negative difference signifies deflation. In other words, inflation occurs when nominal GDP is higher than real GDP. Deflation happens when real GDP is higher than nominal GDP.

{Explanation - The relationship between inflation and unemployment is represented by the Phillips Curve. According to the Phillips Curve, there is an inverse relationship between inflation and unemployment. When unemployment is high, inflation is low; when unemployment is low, inflation is high.}

Due to inflation, GDP increases and does not actually reflect the true growth in an economy. That is why the GDP must be divided by the inflation rate (raised to the power of units of time in which the rate is measured) to get the growth of the real GDP.

During an expansionary phase, real GDP rises, inflation occurs, and unemployment falls. During a recessionary phase, real GDP declines, unemployment increases, and inflation is mild or falling.

What causes GDP to increase? ›

The GDP of a country tends to increase when the total value of goods and services that domestic producers sell to foreign countries exceeds the total value of foreign goods and services that domestic consumers buy.

Inflation is a sustained rise in overall price levels. Moderate inflation is associated with economic growth, while high inflation can signal an overheated economy. If economic growth accelerates very rapidly, demand grows even faster and producers raise prices continually.

How Does Inflation Affect Unemployment? Inflation has historically had an inverse relationship with unemployment. This means that when inflation rises, unemployment drops.

This is because businesses may not be able to keep up with the increased cost of goods and services, leading to fewer jobs being created. At the same time, workers may find that their wages are not keeping up with inflationary pressures, making it harder for them to stay employed.

In the short-run, inflation and unemployment are inversely related; as one quantity increases, the other decreases.

Stagflation is an economic cycle characterized by slow growth and a high unemployment rate accompanied by inflation.

GDP is important because it gives information about the size of the economy and how an economy is performing. The growth rate of real GDP is often used as an indicator of the general health of the economy. In broad terms, an increase in real GDP is interpreted as a sign that the economy is doing well.

If, for example, Country B produced in one year 5 bananas each worth $1 and 5 backrubs each worth $6, then the GDP would be $35. If in the next year the price of bananas jumps to $2 and the quantities produced remain the same, then the GDP of Country B would be $40.

Economic growth refers to an increase in the size of a country's economy over a period of time. The size of an economy is typically measured by the total production of goods and services in the economy, which is called gross domestic product (GDP). Economic growth can be measured in 'nominal' or 'real' terms.

What are the main types of unemployment? There are three main types of unemployment – cyclical, structural and frictional unemployment.

What are the 4 stages of the business cycle? ›

What Are the Stages of an Economic Cycle? An economic cycle, or business cycle, has four stages: expansion, peak, contraction, and trough.

A recession is a decline in total output, unemployment rises and inflation falls. 3. The trough is the bottom of the recession period, unemployment is at its highest, inflation is low.