13. What is unemployment? How can we measure it?
14. What is inflation? What are its causes? What is its impact on the economy? �
13. Unemployment refers to the state of being without a job or work. It is a measure of the number of individuals who are actively seeking employment but are unable to find suitable jobs. Unemployment can be measured using several indicators, including the unemployment rate, labor force participation rate, and the number of discouraged workers.
The unemployment rate is calculated by dividing the number of unemployed individuals by the total labor force (employed + unemployed) and then multiplying it by 100. The labor force participation rate is the percentage of the working-age population (usually, 16 years and older) that is either employed or actively seeking employment. Discouraged workers are those who have given up searching for employment due to a lack of job opportunities and are not counted in the unemployment rate.
14. Inflation is the sustained increase in the general price level of goods and services in an economy over a period of time. It erodes the purchasing power of money and reduces the value of each unit of currency. Inflation can be caused by various factors, including:
a) Demand-pull inflation: When the demand for goods and services increases faster than the economy's ability to produce them, there is an excess demand that drives up prices.
b) Cost-push inflation: When the cost of production increases, such as a rise in wage rates or raw material costs, businesses may pass on these increased costs to consumers, resulting in inflation.
c) Monetary inflation: When the money supply in an economy increases faster than the growth in production, it can lead to inflation.
Inflation has both positive and negative impacts on an economy. Some of the negative impacts include reducing the purchasing power of consumers, leading to a decrease in real income. It can also create uncertainty and instability, making it difficult for businesses to plan for the future. On the positive side, moderate inflation can encourage spending and investment as people try to avoid the erosion of their money's value. It can also help in reducing the burden of debt and stimulate economic growth. However, when inflation becomes too high or unpredictable, it can distort economic decision-making and hinder long-term growth. Central banks and governments often aim to manage inflation within a target range to maintain price stability and promote economic stability.
13. Unemployment refers to the state of being jobless, where individuals are actively seeking employment but unable to find suitable jobs. It is an important economic indicator as it reflects the health of the labor market.
There are several ways to measure unemployment, but the most commonly used method is through the calculation of the unemployment rate. The unemployment rate is the percentage of the total labor force that is unemployed and actively seeking work. It is calculated by dividing the number of unemployed individuals by the total labor force and multiplying by 100.
The labor force consists of individuals who are employed or actively seeking employment. Those who are not actively seeking employment, such as discouraged workers or individuals who have given up looking for a job, are not considered part of the labor force and are not included in the unemployment rate calculation.
Other measures of unemployment include the labor force participation rate, which shows the proportion of the working-age population that is either employed or actively seeking employment, and the employment-population ratio, which measures the proportion of the working-age population that is employed.
14. Inflation is the sustained increase in the general price level of goods and services in an economy over a period of time. It represents a decrease in the purchasing power of money. Inflation is measured using various price indices, such as the Consumer Price Index (CPI) or the Producer Price Index (PPI).
There are several causes of inflation, including:
1. Demand-pull inflation: This occurs when aggregate demand exceeds the available supply of goods and services. It is often driven by factors such as increased consumer spending, expansionary fiscal or monetary policy, or higher business investment.
2. Cost-push inflation: This occurs when there is an increase in production costs, such as wages or raw material prices. When businesses face higher costs, they may pass these costs onto consumers in the form of higher prices.
3. Built-in inflation: This occurs when past inflation expectations and wage increases become embedded in the economy. If workers expect prices to rise, they may demand higher wages, leading to a cycle of wage-price increases.
Inflation can have both positive and negative impacts on the economy. Some potential effects of inflation include:
1. Loss of purchasing power: As prices rise, the value of money decreases, leading to a decrease in the purchasing power of individuals and businesses.
2. Redistribution of wealth: Inflation can redistribute wealth from lenders to borrowers, as the value of money borrowed is eroded by inflation.
3. Uncertainty: Inflation creates uncertainty as it makes long-term financial planning difficult for individuals and businesses.
4. Reduced investment: High or unpredictable inflation can discourage investment, as it undermines the confidence of businesses and investors in the future purchasing power of their money.
5. Unintended consequences: Inflation can lead to unintended consequences such as increased production costs, reduced competitiveness in international markets, or decreased real wages for workers if wages do not keep up with inflation.
Central banks and governments implement various monetary and fiscal policies to control inflation and maintain price stability in the economy.