3.3 Macroeconomic Objectives

• Economic growth


  An increase in real GDP
• Potential economic growth


  An increase in potential real GDP
• Actual Output


  The current level of GDP within the economy; any point within or on the PPC
• Indicators of increase in actual output

  • Increase in actual output
  • ↑ productive efficiency
  • ↓ unemployment
• Short Run Equilibrium


  Actual output represented on the Aggregate Demand/Aggregate Supply Model
• Potential Output


  An increase in the quantity or quality of any of the factors of production (land, labour, capital, enterprise)
• When LRAS shifts, SRAS will shift also
• Impacts of Economic Growth

  • Increase Income
  • Standard of Living
  • Greater tax revenue
  • Reduced unemployment
  • Higher environmental standards
• Standard of Living


  Less poverty
• Greater tax revenue


  Income taxes go up
• Government spending


  The greater the government spends on merit goods (health, education, infrastructure) the greater the effect on living standards
• More goods and services

  More people to produce = less unemployment
• Labour-saving technologies mean more can be produced without more people to produce them
• Creates wants


  Leads to stress (FOMO)
• Environmental degradation


  Without sustainable policies
• Growth in the short-term can prevent growth in the long-term
• Social issues from economic growth

  • Inequality
  • Wide disparities in income
  • Increased tensions
  • Loss of social cohesion
  • Obesity
• Unemployment


  People of working age who are without work, and are actively seeking employment
• Not including in unemployment


  • Kids
  • Elderly
• Calculating the Unemployment Rate
• Labour force


  All employed plus all unemployed people
• Difficulties of Measuring Unemployment

  • Hidden Unemployment
  • Discouraged workers
  • Underemployed
  • Redundant and retraining
  • Hidden Employment
  • Underground economy
  • Lack of Specificity
• Structural unemployment


  Occurs when there is a fall in demand for a particular type of labour
• Structural unemployment often results from technological change
• Decrease in the market for Holden Cars

  ↓ Demand → Less Q → Workers fired
• Frictional unemployment


  Occurs when job seekers enter the labour force or are waiting to start a new job
• Examples of frictional unemployment


  • New job seekers
  • People returning to the workforce
  • People between jobs
• Certain amount of frictional unemployment is inevitable
• Seasonal unemployment


  Occurs when the demand for labour in certain industries change on a seasonal basis
• Seasonal unemployment will always exist in some industries (tourism, agriculture)
• Cyclical unemployment


  Occurs when an economy is in a recessionary gap, arising from low aggregate demand
• Low aggregate demand


  ↓ demand (products) → ↓ production → ↓ demand (workers)
• Full employment


  Does NOT mean 0% unemployment
• Structural, seasonal, and frictional unemployment is called the natural rate of unemployment
• The natural rate of unemployment


  Occurs when an economy is producing at a potential or full employment level of output, equal to structural, seasonal and frictional unemployment
• The natural rate of unemployment is around 4%
• Costs of Unemployment


  • Social stress
  • Loans
  • Family Breakdown
  • Drugs
  • Crime
  • Homelessness
• Inflation


  A sustained increase in the price level
• Deflation


  A sustained decrease in the price level
• Disinflation


  The price level increasing at a decreasing rate