The natural rate of unemployment occurs when the labour market is in equilibrium; it is mainly composed of frictional and structural unemployment. The natural rate of unemployment is affected by supply-side factors such as geographical/occupational immobilities and labour market imperfections. Firstly, it is argued the level of unemployment benefits can affect the level of frictional …
Definition of tight fiscal policy Tight fiscal policy involves increasing the rate of tax and/or cutting government spending. It is sometimes known as deflationary fiscal policy and aims to improve government finances Purpose of tight fiscal policy The aim of tight fiscal policy could be either Reduce inflationary pressure by reducing the growth of aggregate …
Definition of an economic boom A boom is a period of rapid economic expansion resulting in higher GDP, lower unemployment, a higher inflation rate and rising asset prices. Booms usually suggest the economy is overheating creating a positive output gap and inflationary pressures. A boom suggests the economy is growing at a faster rate than …
Definition Real GDP per Capita measures the average level of national income (adjusted for inflation) per person. It gives a rough indication of average living standards. GDP, (Gross Domestic Product) measures the national output/national income of an economy; this is a measure of the volume of goods and services produced in a given year. Real …
Definition of Fiscal Drag Fiscal drag is a concept where inflation and earnings growth may push more taxpayers into higher tax brackets. Therefore fiscal drag has the effect of raising government tax revenue without explicitly raising tax rates. This fiscal drag has the effect of reducing (or limiting increase) in Aggregate Demand and becomes an …
Definition of Buffer Stock Scheme A buffer stock scheme is a government plan to stabilise prices in volatile markets. This requires intervention in buying and selling. Prices for agricultural products are often volatile because: Supply can vary due to the weather. Demand is inelastic Supply is fixed in the short term See: Why are prices …
Poverty implies low income and struggling to meet basic needs. There are two main types of poverty Absolute poverty – income below a certain threshold necessary to meet basic necessities of life (food, shelter, clothing, rent) Relative poverty – Individuals receiving income a certain level (e.g. 50%) below the median income of the general population. …
Definition: Current Prices measures GDP/ inflation/asset prices using the actual prices we notice in the economy. Current prices make no adjustment for inflation. Constant prices adjust for the effects of inflation. Using constant prices enables us to measure the actual change in output (and not just an increase due to the effects of inflation. Example This shows …