Economics: Unemployment, Price Stability, and Balance of Payments

Unemployment

• Unemployment rate is the percentage of the labour force who are willing and able to work but cannot find a job.
• Unemployment rate formula: (Number of unemployed ÷ Labour force) × 100/1

Price Stability

• The goal of price stability is to keep prices as stable as possible or as low as possible.
• If prices keep rising (inflation), the value of people's incomes falls.

Balance of Payment Stability

• NZ trades with other countries through exports and imports.
• The goal is to have exports greater than imports, earning NZ money.

Redistribution of Income

• The aim is to have a more equal distribution of income.
• No gap between rich and poor through a progressive tax system and social welfare system.

Fiscal Policies

• Fiscal policies deal with taxation, government spending, and government borrowings.
• The government raises revenue through taxes.
• If the government does not have enough tax revenue, it will borrow to fund expenditure.
• The government spends tax revenue on public goods.

Types of Fiscal Policies

• Budget deficit: Expenditure is greater than tax revenue.
• Budget surplus: Tax revenue is greater than expenditure.
• Budget: A document showing government tax revenue and expenditure.

Reasons for Government Expenditure

• To influence economic activity.
• To reduce market failure by spending on public goods.
• To promote more equal distribution of income through social welfare.
• To pay off loans and interest.

Budget Surplus

• To redistribute income from rich to poor.
• To discourage consumption of demerit goods.
• To raise the cost of production of firms that cause pollution.
• To discourage the buying of imports.

Direct and Indirect Tax

• Direct tax: Responsibility of tax falls on a specific person (e.g., income tax, company tax).
• Indirect tax: Tax imposed on goods and services, paid by consumers.

Types of Taxes

• Progressive tax: Pay a greater percentage as you earn more (e.g., PAYE).
• Regressive tax: When income rises, the proportion of total tax paid falls (e.g., GST).
• Proportional tax: A flat tax, with a fixed percentage on all incomes.

Recession

• If the economy is in a recession, the government will borrow and spend on public goods to create jobs.
• If the economy is in a boom phase, the government will cut expenditure and borrowing.
• Expansionary fiscal policy: When the government borrows and spends more in a recession.
• Contractionary fiscal policy: When the government spends and borrows less in a boom cycle.

Economic Growth

• Aims of government macroeconomic policies:
  • Low unemployment.
  • Low stable inflation.
  • Balance of payment equilibrium.
  • Steady economic growth.
  • Avoidance of exchange rate fluctuations.
  • Sustainable economic growth.

Measuring Economic Growth

• Economic growth is measured by the increase in GDP per capita.
• Money GDP: The actual value of GDP at current prices.
• If economic growth takes place, GDP per capita will rise.