Inflation, Recession and Unemployment

• Recession

  A recession is a period in which the total output of an economy declines.
• Recession

  A recession is short term typically lasting a few months up to a year.
• Depression

  A depression is falling national output over several years with high levels of unemployment.
• Trade/Business Cycle


  This is the routine increase and decrease of economic activity over time.
• Boom

  The peak in economic activity
• Causes of a Recession

  The Boom(Increasing Demand), Producer Confidence(cautious entrepreneurs), Consumer Confidence (demand of households may fall), Firms shutting down due to insufficient profit
• Consequences of Recession


  Government Taxation Revenue will fall, Total output will decrease, Fewer uses of the factors of production, Less income, Unemployment will rise, Consumption will fall and Standard of Living will fall.
• Fiscal Policy 


  Government Expenditure and Taxation
• Monetary Policy


  Money Supply and Interest Rates
• Unemployment occurs when an individual who is willing and able to work is actively seeking employment but is unable to find work.
• Unemployment Rate

  Unemployment Rate=Number of Unemployed/Labour Force x 100
• Inflation


  The steady and continuous rise in the general price levels in the economy over a prolonged period of time (two successive quarter)
• Demand-Pull Inflation


  This occurs when there is an increase in aggregate demand however the supply levels remain the same.
• Cost-Push Inflation


  This occurs when the cost of the factors of production increases resulting in firms raising their prices to maintain profits.
• Frictionally Unemployment

  The frictionally unemployed are those individuals who are occupationally or geographically immobile. They either do not have the skills to carry out the available jobs or they are unable and unwilling to move to apart of the country where the job is. The frictionally unemployed are also those who are in between jobs.
• Search Unemployment 


  This occurs when someone who is unemployed does not take the first job he or she is offered.
• Seasonal Unemployment 


  Seasonal unemployment occurs when individuals are unemployed at particular times of the year when demand for labour is lower than usual.

  EG: Agricultural, Tourism and Carnival Costume Workers
• Structural Unemployment 


  This occurs when there is a change/shift in the structure of an industry.

  EG: Improvement in technology results in capital replacing labour.

  Falling World Demand for an export

  Technological Progress can result in products becoming obsolete hence demand will fall.
• Cyclical/Keynesian/Demand-Deficient Unemployment 


  This occurs when there is a fall in the aggregate demand of a economy/country. As aggregate demand falls firms will reduce their level of output hence less factors of production (labour) will be necessary. This will result in unemployment since less labour is needed.
• Real-Wage Unemployment 


  This occurs when trade unions succeed in raising the wage above equilibrium level which results in the supply of labour exceeding the demand for labour hence the excess/surplus will become unemployed.
• Benefits of Unemployment

  1. The unemployed have an opportunity to do extra training or pursue hobbies.
  2. Reduces Cost-push Inflation
  3. The Labour Market becomes the buyers/firms market hence workers will be less likely to take industrial action and be more productive.
• Consequences of Unemployment

  1. The unemployed do not have the resources to enjoy a good quality of life hence the standard of living will fall.
  2. When individuals are unemployed for long periods of time, human capital is eroded as they lose there skills.
  3. When individuals are unemployed this means society isn't employing all their resources to produce goods and services hence the economy is inefficient.
• Measures to Reduce Unemployment

  1. Retaining Programs
  2. Regulations and Agreements with trade unions
  3. Reflationary Fiscal and Monetary Policy
  4. Government Projects-Development of certain areas
  5. Job Centers and Advertisement of available jobs