Voluntary unemployment

Voluntary unemployment

Voluntary unemployment is defined as a situation where the unemployed choose not to accept a job at the going wage rate. Reasons for voluntary unemployment Generous unemployment benefits, which make accepting a job less attractive. High marginal tax rates, which reduce effective take home pay. Unemployed hoping to find a job more suited to skills/qualifications. Some jobs are seen as ‘demeaning’ or too tedious. For example, fruit picking/security guard. Preferenc.e for ‘leisure’ (not working) over working. Examples of Voluntary Unemployment In the 1970s…

Structural unemployment

Structural unemployment

Structural unemployment is caused by a mismatch of skills between the unemployed and available jobs. Structural unemployed is caused by changes in the economy, such as deindustrialisation, which leaves some unemployed workers unable to find work in new industries with different skill requirements. Structural unemployment occurs even during periods of strong economic growth. It is a form of supply side unemployment and not insufficient aggregate demand (AD).  Policies to reduce structural unemployment include retraining and geographical subsidies. Fiscal or monetary policy to boost AD will be ineffective in solving structural…

Impact of Immigration on UK Economy

Impact of Immigration on UK Economy

In the past two decades, the UK has experienced a steady flow of net migrants into the economy. This net migration has had a wide-ranging impact on UK population, wages, productivity, economic growth and tax revenue. To what extent does net migration benefit the UK economy? International Migration ONS In 2016, Net long-term international migration was estimated to be +248,000 in 2016. Immigration was estimated to be 588,000 and emigration 339,000. 9,634…

Demand-pull inflation

Demand-pull inflation

Demand-pull inflation is a period of inflation which arises from rapid growth in aggregate demand. If aggregate demand (AD) rises faster than productive capacity (LRAS), then firms will respond by putting up prices, creating inflation. Inflation – a sustained increase in the price level. Demand-pull inflation – inflation caused by AD increasing faster than AS. Demand-pull inflation means: Excess demand and ‘too much money chasing too few goods.’ The economy is at full employment/full capacity. The economy will be growing at a rate…

Price controls – advantages and disadvantages

Price controls – advantages and disadvantages

Readers Question: what are the pros and cons of price control? Summary Price controls can take the form of maximum and minimum prices. They are a way to regulate prices and set either above or below the market equilibrium: Maximum prices can reduce the price of food to make it more affordable, but the drawback is a maximum price may lead to lower supply and a shortage. Minimum prices can increase the price producers receive. They have been used in agriculture to increase farmers income. However, minimum prices lead to over-supply…

Transactional utility

Transactional utility

Transactional utility is a term to describe the happiness a consumer gets from the perceived value of the deal. ‘Transactional utility’ was developed by Richard Thaler and is said to be the difference between the actual price and your reference price – the price you expect to pay. Example, Suppose you expect to pay $50 for a new coat. However, when you go into the shop, you find there is an unexpected sale of 20%. Therefore, the price you actually pay is $40. You gain the utility of buying the…

Economic Growth UK

Economic Growth UK

Economic growth measures the change in real GDP (national income adjusted for inflation; ONS call it chained volume measure of GDP) In 2016 the UK economy grew by 1.8% –  (compared to 2.2% in 2015. In the first half of 2017, the economy has grown by just 0.5% (annualised growth of 1%) Q1 0.2% | Q2 0.3% The peak to trough fall of the economic downturn in 2008/2009 is now estimated to be 6.0% Figures for Q2 2017 show the economy is reliant on consumer spending, with…

Impact of Expansionary Fiscal Policy

Impact of Expansionary Fiscal Policy

Readers Question: what are the impacts of expansionary fiscal policy? Expansionary fiscal policy involves government attempts to increase aggregate demand. It will involve higher government spending and/or lower tax. In theory, higher government spending will increase aggregate demand AD=(C+I+G+X-M) and lead to higher economic growth.AD=(C+I+G+X-M) and lead to higher economic growth. Expansionary Fiscal Policy Lower taxes should increase the disposable income of consumers leading to higher levels of consumer spending. This should also…