Full Employment of Labour

Unemployment comprises of the people who aren't working but are actively seeking employment.

Unemployment rate = Unemployed People/Total Labour Force X 100%

Labour Force = Employed + Unemployed (Age 15+)

Labour Force Participation Rate = Labor Force/Civilian Population Over 15 X 100%

Types of Unemployment-

General or Cyclical Unemployment

-Depends on level of economic activity

Frictional Unemployment
-people between jobs

Seasonal Unemployment
-temporarily jobless between seasons
-government not interesting in correcting cause its temporary

Structural Unemployment
-Firms downsizing/restructuring

Hardcore Unemployment
-ownself sohai

Hidden Unemployment
-Discouraged from working, but would wanna work but not seeking job. (Not counted in labour force)

Underemployed
-Want full-time but only get part-time

Natural Rate of Unemployment = Frictional + Structural + Hard Core
As all these are unavoidable

Acceptable Rate = 5%

Price Stability

-occurs with low inflation
-2%-3% Target of inflation

Indicators:
Consumer Price Index (CPI) most accurate


CPI = (Total dollar expenditure on market basket in current year)/(Total dollar expenditure on market basket in base year) x 100

Percentage change in prices = ( CPI later year – CPI earlier year)/
(CPI earlier year) ] X 100

Uses of CPI
To measure changes in the rate of inflation or deflation.
In the adjustment of wages.
To assess the effectiveness of government economic policy in the control of inflation.
To measure “real” changes in economic growth.

Limitations of CPI
Includes only small sample of G&S so its not accurate
Not accurate as everyone buys diff stuff
Published 6-8 weeks after calculated, inflation rate late

Causes of Inflation
Imported Inflation - importing their inflation increasing our price domestic price increased also
Demand-pull Inflation - consumers demand more, so pull price up
Cost-push Inflation - production prices increase, wages/raw materials, taxes

Worsens EB and causes Unemployment

External Balance - Part B

FOREX - foreign exchange

When the Australian dollar depreciates:
International competitiveness improves.
Better international trade competitiveness improves Australia’s trade balance.
Higher economic growth and employment.
Fall in Australian investment overseas.
Rise in foreign investment into Australia.
Higher rate of inflation.
Increased net foreign debt and worsening CAD.
Rise in domestic interest rates.

When the Australian dollar appreciates:
Australia’s level of foreign debt falls.
The rate of domestic inflation falls.
Loss of international competitiveness.
Decrease in foreign direct and portfolio investment into Australia.
Rise in Australian investment overseas.
Levels of employment, income, and economic growth fall.

Causes of imbalance:
High inflation and declining international competitiveness
trade deficit
The lowering of protective barriers to trade (tariffs and quotas)
saving – investment gap.
The income transfers
deteriorating state of the global economy.
depreciation of the Australian dollar
appreciation of the Australian dollar
drought
rapid economic growth

Effects of imbalance:
Foreign debt
Reduced credit rating
Loss of investor confidence
Putting country at Risk of not being able to pay
Policy Responses (government policies)

External Balance

External Balance
-being able to meet all its financial obligations to other countries
-affected by current and capital flows

Current Flows:

Export and imports
-borrowing occurs to pay debt
-if export does not > import, trade balance deficit

Income transfer overseas
-interest payments on loans and dividend payments to owners of shares in domestic firms & other payment to foreigners (outflow of money)
-if income flow in > outflow, income transfer surplus archieved

3 Current Accounts:
Good and Services
(Export and import)

Income Transfer
(International payment and receipt)

Current Transfer
(giving without returns)

Current account deficit (CAD)
-import > export
-high level of capital inflow into Australia

The Australian Capital and Financial Account:

-total receipt > total payment, positive/surplus

-2 types of foreign investment

~Direct Investment
-Ownership more then 10%
-involves establishment and continued operation of firms and businesses within Australia
~Portfolio investment
-less then 10% firm purchased
-commercial bonds, foreign government securities and debentures
-depends on Aus's level of interest rates, share prices and level of business confidence

-income repatriation (send money back overseas)

-foreign ownership (country lose sovereignty over resources, owns more then 50% of company)

Indicators of External Balance
-Current account deficit as percentage of GDP (3% of CAD as a percentage of GDP)
-Net foreign debt as a percentage of GDP (40%-50%)
-Exchange rate (outflow > inflow, $ exchange fall)

Topic 4 : Macroeconomics Objectives

Economic Growth
-sustained increase in total output of goods and services
-occurs when there is increased total value of goods and services produced compared to previous years
-rate of increase of real GDP
-PPF shift outwards when it occurs

GDP-
Consumption, Investment, Government Spending, Net Exports

Benefits of economic growth:
–Higher income per capita and improved standard of living
–Creation of employment
–Less absolute poverty
–Higher levels of investment
–New technology
–External balance
–Greater tax revenue
–Higher environmental standards
–Leisure time

Costs of Economic Growth:
-Environmental degradation
-Structural unemployment
-Effects of inflation
-External balance and foreign debt
-Inequality of income worsens
-Materialism and consumerism
-Social costs