Understanding Macroeconomics: Key Factors and Impacts

Macroeconomics: Key Factors and Impacts

Factors

Internal market forces: Population growth, investment spending, technological innovation.

External shocks: Wars, climate conditions.

Macroeconomic policies: Tax spending.

Resulting Objective Variables

• Economic growth
• Inflation
• Employment and unemployment
• Public deficit
• External deficit
• Exchange rate

Types of Unemployment

• Cyclical Unemployment: Occurs when there are idle workers and insufficient resources to employ them all.

• Seasonal Unemployment: Caused by changes in labor demand at different times of the year.

• Frictional Unemployment: Related to the normal functioning of the labor market.

• Structural Unemployment: Due to imbalances between the qualifications or location of the workforce and the qualifications required by employers.

Impact of Unemployment

Economic Effects

• Decrease in actual production: Unemployment implies inefficient resource allocation.

• Decrease in demand: Individuals' income decreases when they become unemployed.

• Increase in public deficit: If unemployment increases, public sector expenditure will rise to cope with larger unemployment subsidies.

Social Effects

• Negative psychological effects: Employment has become a factor in self-esteem and a cover letter for society.

• Discriminatory effects: Unemployment does not affect all individuals equally.

Theories Explaining Unemployment

Labor Market Operations

According to classical economists: Unemployment is voluntary because it would disappear if workers accepted lower wages. Downward rigidity of wages causes unemployment.

Keynesian Unemployment

Not due to the behavior of wages but to the insufficient level of aggregate demand, thus unemployment is involuntary. Increasing employment increases total spending in the economy through an aggressive demand policy. The problem is that increasing the quantity of product and employment also increases the general level of prices, leading to inflation.

The Economic Cycle

Four Movements

1. The growing trend includes the development of sustained long-term production, called potential output.

2. Economic cycles are recurrent fluctuations on the edge, with a variable length greater than one year.

3. Seasonal variations are also recurrent movements with a fixed duration, generally less than one year.

4. Random or irregular variations.

Phases of the Cycle

The phases of growth are called expansion. When production growth is at its lowest, it is said that there is a crisis. Peaks and troughs are the turning points. The downward phase is a recession. A depression is a severe recession. Recessions impose many costs on society.