TOPIC 7 : Macroeconomic Problem

Business cycle

- The more or less regular fluctuations of GDP around its long-run trend
- Describe the ups and downs of economic activity

1 1

1 Contraction Output decrease

(Recession) Unemployment rate rise
Consumer & business confidence drop
2 Trough Business activity at lowest point
Unemployment rate relatively high
Consumer & business confidence poor
3 Expansion Output increase
(recovery) Unemployment rate decrease
Consumer & business confidence increase
4 Peak Output max
High employment
Consumer & business confidence optimism
Unemployment

- Inability of labor force participant to find job

Type of unemployment

1. Frictional unemployment
short term
worker move from a job to another job (to find better job)
while searching a job
2. structural unemployment
capital-labor substitution
when there is a long-run decline in demand
exist where there is a mismatch between their skills and the requirement of
the job opportunities
3. cyclical unemployment
exist when :
a. downturn in aggregate demand
b. short term cyclical fluctuation
c. commonly during recession
4. seasonal unemployment
due to seasonal changes in employment
only produce product at certain times of the year
Labor force
- is the number of people over 16 years old who are either employed or unemployed

i. employed
people who over 16 years old in the non-institutional population who :
did not work at all as paid
work 15 hours and above as unpaid
work in their own business
temporarily absent from work
full time/ part time/ temporarily work

ii. unemployed
people who over 16 years old who is not working, available for work and had
made specific effort to find work over the past 4 weeks.

Categories of employment
job loser
reentrant
job leaver
new entrant
Not in labor force
- those who have no job and not looking for a job
- eg. Retired, full time student

i. institutional population
- mental institution, prison, military

ii. discouraged worker

- people who wants to work who has given up searching for job

Unemployment rate = (number unemployed / labor force) X 100

Inflation

- when there is a continuous trend in the rising average price levels in the economy for
2 quarters consecutively for G&S
- inflation is not a high price, but rising price
- inflation represent a decline in purchasing power of the currency
- inflation lowers the value of money

causes of inflation

i. demand pull inflation

- too much money chasing too few goods
- when demand is growing faster than supply
- usually occurs in growing economies

ii. cost pull inflation

- when input price increase, reduce the ability of producer to generate output
- firm need to increase the price to maintain profit margins
- only occurs when there is a shortage in supply + enough demand

Inflation rate = ( F I )/ I X 100

Deflation occurs when the general level of price is falling

Hyperinflation is inflation exceed 50% per month.