Involuntary unemployment is a situation where workers are willing to work at the market wage or just below but are prevented by factors beyond their control. These factors could include deficiency of aggregate demand, labour market inflexibilities, implicit wage bargaining and efficiency wage theory. In Keynesian theory, involuntary unemployment is associated with insufficient aggregate demand …
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. …
The real interest rate is the nominal interest rate – inflation rate. For example, if the Bank of England set base rates of 5.5% and the CPI inflation rate is 3.4%. Then the real interest rates is said to be 2.1% A higher real interest rate is good for savers and bad for borrowers. Note, …
A look at the pros and cons of austerity (government spending cuts). Is austerity a way to solve economic problems, or does it merely lead to a deeper recession and lower tax revenues.
Despite housing being a secure asset, the housing market can be prone to bubbles and periods of rapidly falling prices. In recent years, the period 2005-09 saw a prolonged and significant fall in house prices in both the US and Europe. A housing market crash can be precipitated by a change in economic fundamentals (higher …
A budget surplus occurs when government tax receipts are greater than government spending. It means the government can either save money or pay off existing national debt. It is worth noting, that budget surpluses are quite rare in the past 120 years. Politicians have sometimes attempted to enshrine budget surplus into law but what are …
The trend rate of economic growth is the average sustainable rate of economic growth over a period of time. It is determined by growth in productivity.
A look at the extent to which policy makers face a trade off between unemployment and inflation. The Phillips curve suggests there is a trade off between inflation and unemployment, at least in the short term. Other economists are more sceptical.