1. Macroeconomic instability and forms of its manifestation in a transition economy

   Abstract >> Economics

   Is: study of theoretical aspects macroeconomic instability (economic cycles, unemployment And inflation), study of manifestation macroeconomic instability in the Republic of Belarus and holding it...

2. Economic cycles, unemployment

   Abstract >> Economics

   Economic cycles, unemployment Economic cycle- periodic fluctuations in levels of employment, production and inflation. The reasons for cyclicity are... the sum of levels unemployment And inflation as two main indicators macroeconomic instability.

3. Economic theory. Lecture notes

   Abstract >> Economic theory

   Interpretation macroeconomic instability. Chapter 11. Macroeconomic instability: economic cycles 11.1. Economic cycles. 11.2. Unemployment: types, measurement, social economic consequences. 11.3. Inflation ...

4. Macroeconomic balance (1)

   Coursework >> Economics

   And credit." - M.: Yurist, 2004. - 861 pp. Kazhuro N. Ya. Macroeconomic instability: economic cycles, inflation, unemployment. - Minsk: FUAinform, 2004. - 207 p. Kravtsova...

5. Economic theory (40)

   Abstract >> Economic theory

   ... . Macroeconomic balance………………… 8.2. Cyclical nature economic development. Modern cycles and crises……………… 8.3. Unemployment And inflation as manifestations macroeconomic instability and their social economic ...

Considering the fundamentals of the functioning of macroeconomic systems, one cannot help but dwell on such reasons for their destabilization as unemployment and inflation. Let's begin their analysis with the problems of unemployment, the size and dynamics of which determine the volume of real GNP produced in the national economy of a particular country.

Any economic system, in order to maintain the desired stability in the process of its development, strives to maintain full employment of the able-bodied population, ensuring, other things being equal, the maximum possible volume of GNP production. Full employment can, it would seem, be interpreted as 100% employment of the country's working population willing to work. However, it is not. Some level of unemployment in any economic system is considered normal and justified. To more clearly define the use of the concept of “full employment” in economic theory, let us consider the different types of unemployment.

Friction unemployment associated with searching for or expecting a job in the near future. It is inevitable and, to some extent, desirable, since many workers, finding themselves temporarily “between jobs,” usually move from low-paid, unproductive work to more productive activities. This means higher incomes for workers and a more efficient allocation of resources, and therefore a larger real GNP.

Structural unemployment caused by changes in the structure of consumer demand. Over time, consumer demand changes under the influence of fashion, tastes, preferences and other subjective factors. To meet new demand, production must be restructured to produce new goods. This requires time, installation of new equipment and reduction of old production, which changes the structure of overall labor demand and leads to partial structural unemployment.

The difference between frictional and structural unemployment is very vague, but the important thing is that the "frictional" unemployed have skills that they can sell when hired, and the "structural" unemployed cannot immediately get a job without retraining, additional training, or even change of place of residence. Frictional unemployment is therefore more short-term in nature, while structural unemployment is long-term, and is therefore considered a serious problem.

Frictional and structural unemployment are inevitable components of the natural rate of unemployment.

Thus, full employment in an economic system can be quantified by the formula

The unemployment rate (level) is calculated as the ratio of the number of unemployed to the size of the labor force in the country, which includes all persons who can and want to work.

It is obvious that the natural level of unemployment can change (and does change) under the influence of various factors both in time and in space. Currently, the natural rate of unemployment ranges from 5 to 7% of the working population.

The real volume of GNP under conditions of full employment is called production potential of the economy. In other words, the production potential of an economy is the real volume of output that the economy is able to produce with “full use” of labor resources.

Cyclical unemployment – This is unemployment caused by a decline in production, i.e. that phase of the economic cycle that is characterized by insufficient total, or aggregate, spending. When the overall demand for goods (services) in a country decreases, employment decreases and unemployment increases. For this reason, cyclical unemployment is sometimes called demand-side unemployment. So, in the case of “full employment”, cyclical unemployment is zero, i.e. absent. Unfortunately, the actual unemployment rate almost always exceeds the natural unemployment rate that characterizes “full employment.”

The main “price” of unemployment is unproduced output. The relationship between the unemployment rate and output is described by Okun's law. which states: if the actual unemployment rate exceeds the natural rate, then each percentage point of excess means a decrease in real GNP by 2.5% (Oken's coefficient).

Mathematically, Okun's law can be written as follows:

where is the volume of GNP in the country taking into account inflation; – the volume of GNP in the country under conditions of full employment; – actual unemployment rate in the country, %; – natural level of unemployment in the country (%); TO– Okun coefficient, %.

The non-economic costs of unemployment are expressed primarily in the deskilling of the unemployed labor force, the collapse of the moral foundations of society and its morality.

In addition, unemployment, especially mass unemployment, can lead to social upheaval and disasters in society. For example, Adolf Hitler came to power in 1933 precisely on such a wave of unemployment.

It is quite obvious that only a fairly rich country can afford to support the unemployed. Otherwise, you can get not a “reserve army of labor”, but a powerful base of social explosions. Russian “theoretic reformers” also need to remember this.

• The term "frictional" indicates that this type of unemployment occurs when the labor market does not function smoothly, with friction, in other words, with friction (lat. frictio friction).
• Arthur Oaken(1928–1980) – American economist. In the 1960s was the main economic policy adviser to John Kennedy and Lyndon Johnson. Investigated the problems of pricing and wage formation in a modern mixed economy.

INTRODUCTION

I.ECONOMIC CYCLES

II.UNEMPLOYMENT

1. TYPES OF UNEMPLOYMENT

1.1 Frictional unemployment

1.2 Structural unemployment

1.3 Cyclical unemployment

2. DEFINITION OF “FULL EMPLOYMENT”

3. DETERMINING THE UNEMPLOYMENT LEVEL

4. COSTS OF UNEMPLOYMENT

4.1 Economic Costs of Unemployment

4.2 Non-economic costs of unemployment

5. INTERNATIONAL COMPARISONS

III.INFLATION

1. PRICE INDEX

2. MEASURING INFLATION

3. CAUSES OF INFLATION

3.1 Demand inflation

3.2 Inflation caused by rising production costs, or a decrease in aggregate supply

3.2.1 INFLATION CAUSED BY INCREASING SALARS

3.2.2 INFLATION CAUSED BY DISRUPTION OF THE SUPPLY MECHANISM.

3.3 Difficulties

4. COSTS OF INFLATION

4.1 The impact of inflation on redistribution.

4.2 Expected inflation

4.3 The influence of inflation on the volume of national product

4.3.1 CONCEPT OF DEMAND DEMAND INFLATION

4.3.2 COST-DRIVEN INFLATION AND UNEMPLOYMENT.

4.3.3 HYPERINFLATION AND CRASH

CONCLUSION

BIBLIOGRAPHY

John Maynard Keynes

INTRODUCTION

Every science has its own object of knowledge. This fully applies to economic science. A characteristic feature of the latter is that it is one of the most ancient sciences. The origins of economic science go back centuries, to the place where the cradle of world civilization was born - to the countries of the Ancient East of the 5th-3rd centuries. BC e.. Later, economic thought was developed in Ancient Greece and Ancient Rome. Aristotle introduced the term “economy” (from the gr. Oikonomia - household management), from which the later word “economics” came. In the early Middle Ages, Christianity declared simple work to be a holy work, and the most important principle began to be established: he who does not work, does not eat.

Economics emerged as a science in the 16th-17th centuries. Its first theoretical direction was mercantilism, which saw the substance of the wealth of society and the individual in money, and reduced money to gold. In the 17th century A new name for economic science appeared - political economy, which existed for more than three centuries. A new direction to this science was given by the physiocrats, who argued that the source of wealth was not exchange, but agricultural labor. The founder of classical political economy was the Scottish economist Adam Smith (1723-1790), who published his famous book “An Inquiry into the Nature and Causes of the Wealth of Nations” in 1776. His teaching laid the foundations for the labor theory of value and the market economy as a whole. A. Smith’s teaching was further developed in the works of the German philosopher and economist Karl Marx (1818-1883), who created the theory of scientific socialism in his multi-volume work “Capital”.

Modern economic science these days has received a more common name - economic theory, and in Anglo-American literature - "economics". The term “economics” was first introduced by the English economist Alfred Marshall (1842-1924) in his book “Principles of Economics”.

In modern economics, taken in its conceptual theoretical aspect, there is a synthesis of the old classical school and three new directions:

1. Keynesian movement, named after its founder, the English economist John Maynard Keynes (1883-1946).

2. Neoclassical direction.

3. Institutional-sociological approach to solving problems of economic life.

Modern economic theory studies the behavior of economic entities at all levels of the economic system in the processes of production, distribution, exchange and consumption of material goods and services in order to satisfy human needs with limited resources of the family, the company and society as a whole.

Technical progress, rapid increases in production capacity and living standards, one of the highest in the world, are strategic directions for the dynamic development of the economy. However, this long-term economic growth was not uniform, but was interrupted by periods of economic instability.

I.ECONOMIC CYCLES

The term "business cycle" refers to successive ups and downs in levels of economic activity over a period of years.

It is customary to distinguish four phases of the economic cycle. It should be noted that a recession does not always entail serious and prolonged unemployment, and the peak of the cycle does not always entail full employment. Despite the phases common to all cycles, individual economic cycles differ significantly from each other in duration and intensity. Therefore, some economists prefer to talk about economic fluctuations rather than cycles, because cycles, unlike fluctuations, imply regularity. The Great Depression of the 1930s severely disrupted economic activity for a decade. Comparing it with the recessions of 1924 and 1927 shows that, like most postwar recessions in the United States, they were less intense and longer lasting.

Although initial causal factors such as technological innovation, political events, and money accumulation have been used to explain the cyclical development of the economy, it is generally believed that the direct determinant of national output and employment is the volume of total expenditure.

In a primarily market-oriented economy, businesses produce goods and services only if they can be sold profitably; if overall costs are low, many businesses do not benefit from producing goods and services in large quantities. Hence the low level of production, employment and income. Higher levels of overall production, employment and income. A higher level of total spending means that increased production generates profits, so production, employment and income will also increase. When the economy reaches full employment, real output becomes constant, and additional spending simply raises the price level.

All sectors of the economy are affected differently and to varying degrees by the business cycle. The cycle has a stronger impact on output and employment in industries that produce capital goods and durable goods than in industries that produce nondurable goods.

When the economy begins to struggle, manufacturers often stop purchasing more modern equipment and building new plants. In such a situation, there is simply no point in increasing inventories of investment goods.

When the family budget has to be cut, the first thing that goes down is the cost of purchasing durable goods, such as household appliances and cars. People don't buy new models. The situation is different with food products and clothing, that is, non-durable consumer goods. The family must eat and these purchases will decrease and their quality will deteriorate, but not to the same extent as durable goods.

Most industries producing capital goods and durable goods are highly concentrated, with a relatively small number of large firms dominating the market. As a result, such firms have sufficient monopoly power to counteract price declines over a certain period by limiting output due to falling demand. Therefore, the reduction in demand mainly affects production and employment. We see the opposite picture in industries producing non-durable goods (“soft goods”). These industries are mostly quite competitive and characterized by low concentration. They cannot counteract rising prices, and the fall in demand is reflected more in prices than in production levels.

UNEMPLOYMENT AND INFLATION

States of the economy, which are, as a rule, inversely related, and the balance between which is the main task of macroeconomic policy.

II.UNEMPLOYMENT

An economic condition in which those willing to work are unable to find work at the normal wage rate.

The concept of “full employment” is difficult to define. At first glance, it can be interpreted in the sense that the entire amateur population, that is, 100% of the labor force, has a job. But that's not true. A certain level of unemployment is considered normal, or justified.

The unemployment rate is the percentage of unemployed people in the labor force, which does not include students, pensioners, prisoners, and boys and girls under 16 years of age.

The overall unemployment rate is the percentage of unemployed people in the total labor force, which includes active duty military personnel.

1. TYPES OF UNEMPLOYMENT

1.1. Frictional unemployment

Economists use the term frictional unemployment(it is related to searching for or waiting for work) in relation to workers who are looking for work or waiting for work in the near future. The definition of “frictional” accurately reflects the essence of the phenomenon: the labor market functions clumsily, creakingly, without bringing the number of workers and jobs into line.

Frictional unemployment is considered inevitable and to some extent desirable. Why desirable? Because many workers who voluntarily find themselves “between jobs” move from low-paying, low-productivity jobs to higher-paying, more productive jobs. This means higher incomes for workers and a more rational distribution of labor resources, and therefore a larger real volume of national product.

Frictional unemployment – unemployment associated with the short-term period necessary to look for a new job, in connection with obtaining an education, leaving maternity leave, or moving. As wealth increases, frictional unemployment may increase, and it may be reduced as methods for collecting information about jobs improve, which, however, requires increased costs.

1.2. Structural unemployment.

Frictional unemployment quietly moves into the second category, which is called structural unemployment. Economists use the term "structural" to mean "composite." Over time, important changes occur in the structure of consumer demand and in technology, which, in turn, change the structure of overall labor demand. Due to such changes, the demand for some types of professions decreases or ceases altogether. Demand for other professions, including new ones that previously did not exist, is increasing. Unemployment occurs because the labor force is slow to respond and its structure does not fully correspond to the new job structure. As a result, it turns out that some workers do not have skills that can be quickly sold; of skills and experience have become outdated and unnecessary due to changes in technology and the nature of consumer demand. In addition, the geographic distribution of jobs is constantly changing. This is evidenced by the industrial migration from the Snow Belt to the Sun Belt over the past decades.

Examples: 1. Many years ago, highly skilled glassblowers were left out of work due to the invention of machines used to make bottles. 2. More recently, in the southern states, unskilled and insufficiently educated blacks were forced out of agriculture as a result of its mechanization. Many were left without work due to insufficient qualifications. 3. An American shoemaker, left unemployed due to competition from imported products, cannot become, for example, a computer programmer without undergoing serious retraining, and perhaps without changing his place of residence.

Structural unemployment - unemployment associated with the period of job search by those workers whose specialty or qualifications do not allow them to find the necessary work. Structural unemployment is thus associated with a mismatch between labor supply and demand. Such a discrepancy can exist not only in the types of work, but also between regions of the country.

The difference between frictional and structural unemployment is very vague. The significant difference is that the “frictional” unemployed have skills that they can sell, while the “structural” unemployed cannot immediately get a job without retraining, additional training, or even a change of place of residence; Frictional unemployment is more short-term in nature, while structural unemployment is more long-term and therefore considered more severe.

1.3. Cyclical unemployment

By cyclical unemployment we mean unemployment caused by a recession, that is, that phase of the economic cycle that is characterized by insufficient general, or aggregate, spending. When aggregate demand for goods and services decreases, employment falls and unemployment rises. For this reason, cyclical unemployment is sometimes called demand-side unemployment. For example, during the recession of 1982. the unemployment rate rose to 9.7%. At the height of the Great Depression of 1933. cyclical unemployment reached approximately 25%.

Cyclical unemployment –the difference between the unemployment rate at a given point in the industrial cycle and the natural unemployment rate. Thus, in conditions of recession, cyclical unemployment is added to frictional and structural ones, and in conditions of expansion, its negative value reduces the unemployment rate by subtracting cyclical unemployment from both frictional and structural ones.

2. DEFINITION OF “FULL EMPLOYMENT”

Employment rate– percentage of employed people to the adult population not on social security, in shelters, nursing homes, etc.

Full employment does not mean absolutely no unemployment. Economists consider frictional and structural unemployment to be completely inevitable: hence, "full employment" is defined as employment that accounts for less than 100% of the labor force. Precisely speaking, full employment unemployment rate equal to the sum of the levels of frictional and structural unemployment. In other words, the full employment unemployment rate occurs when cyclical unemployment is zero. The full employment unemployment rate is also called natural rate of unemployment. The real volume of national product, which is associated with the natural rate of unemployment, is called the productive potential of the economy. This is the actual amount of output that the economy is able to produce when resources are “fully utilized.”

The full, or natural, rate of unemployment occurs when labor markets are balanced, that is, when the number of job seekers equals the number of available jobs. The natural rate of unemployment is to some extent a positive phenomenon. After all, the “frictional” unemployed need time to find suitable vacancies. Structural unemployed people also need time to gain qualifications or move to another location when necessary to get a job. If the number of job seekers exceeds the available vacancies, then labor markets are not balanced; At the same time, there is a deficit in aggregate demand and cyclical unemployment. On the other hand, with excess aggregate demand, there is a “shortage” of labor, that is, the number of available jobs exceeds the number of workers looking for work. In such a situation, the actual unemployment rate is below the natural rate. The unusually “tense” situation in labor markets is also associated with inflation.

The concept of “natural rate of unemployment” requires clarification in two aspects.

First, this term does not mean that the economy always operates at the natural rate of unemployment and thereby realizes its productive potential. Unemployment rates often exceed the natural rate. On the other hand, in rare cases, an economy may experience a level of unemployment that is below the natural rate. On the other hand, in rare cases, an economy may experience a level of unemployment that is below the natural rate. For example, during the Second World War, when the natural rate was on the order of 3-4%, the demands of war production led to an almost unlimited demand for labor. Overtime and part-time work have become commonplace. Moreover, the government did not allow workers in “essential” industries to quit, artificially reducing frictional unemployment. The actual unemployment rate for the entire period from 1943 to 1945 was less than 2%, and in 1944 it fell to 1.2%. The economy was exceeding its production capacity but was putting significant inflationary pressure on output.

Secondly, the natural rate of unemployment in itself is not necessarily constant; it is subject to revision due to institutional changes (changes in the laws and customs of society). For example, in the 1960s, many believed that this inevitable minimum of frictional and structural unemployment was 4% of the labor force. In other words, it was recognized that full employment had been achieved when 96% of the labor force was employed. And currently, economists believe that the natural rate of unemployment is approximately 5-6%.

Why is the natural rate of unemployment higher today than in the 60s? First, the demographic composition of the workforce has changed. In particular, women and young workers, who have traditionally had a high proportion of unemployed, have become a relatively more important component of the labor force. Secondly, institutional changes have occurred. For example, the unemployment compensation program was expanded both in the number of workers it covered and in the amount of benefits. This is important because unemployment compensation, by weakening its impact on the economy, allows the unemployed to more easily look for work and thereby increases frictional unemployment and the overall unemployment rate.

Natural rate of unemployment- a combination of frictional and structural unemployment, or the unemployment rate associated with a stable economy, when the real national product is at a natural loss, and there is no slowing or accelerating inflation, or when the expected rate of inflation is equal to the actual rate of inflation.

3. DETERMINING THE UNEMPLOYMENT LEVEL

The debate over the definition of the full employment unemployment rate is exacerbated by the fact that in practice it is difficult to determine the actual unemployment rate. The entire population is divided into three large groups. The first includes persons under 16 years of age, as well as persons in specialized institutions - i.e. persons who are not considered potential components of the labor force. The second group consists of adults who potentially have the opportunity to work, but for some reason are not working and are not looking for work. The third group is the labor force, this group includes people who can and want to work. The labor force is considered to consist of those who are employed and those who are unemployed but actively seeking work. The unemployment rate is the percentage of the labor force that is unemployed.

Unemployment rate = unemployment x 100

work force

The Labor Ministry's statistical office is trying to determine the number of people working and unemployed by conducting monthly sample surveys of about 60,000 families nationwide.

An accurate estimate of the unemployment rate is complicated by the following factors:

1. Part-time employment. In official statistics, all part-time workers are included in the category of full-time workers. By counting them as fully employed, official statistics underestimate the unemployment rate.

2. Workers who have lost hope of getting a job. By not including workers who have lost hope of getting a job in the category of unemployed, official statistics underestimate the unemployment rate.

3. Fake information. The unemployment rate can be inflated when some unemployed people claim that they are looking for work when this is not true, and the shadow economy also contributes to inflating the official unemployment rate.

Conclusion: Although the unemployment rate is one of the most important indicators of a country's economic health, it cannot be considered an infallible barometer of the health of our economy.

4. COSTS OF UNEMPLOYMENT

The problems associated with estimating the unemployment rate and determining the full employment unemployment rate should not interfere with understanding the important truth that excessive unemployment has large economic and social costs.

4.1 Economic costs of unemployment.

The economic costs of unemployment, expressed in the lag in the volume of GNP, are the goods and services that society loses when its resources are in forced downtime. Okun's law states that a one percent increase in unemployment above the natural level leads to a 2.5 percent increase in the GNP gap.

4.2 Non-economic costs of unemployment.

Cyclical unemployment is a social catastrophe. Depression leads to inactivity, and inactivity leads to loss of skills, loss of self-esteem, decline in moral values, family breakdown, and social and political unrest.

5. INTERNATIONAL COMPARISONS

There is a huge difference in unemployment and inflation rates in different countries. Unemployment rates differ because countries have different natural unemployment rates and are often at different points in the economic cycle. Over the past few years, inflation and unemployment rates in the United States. They were low compared to a number of other industrial countries.

Average unemployment and inflation rates in nine countries over a five-year period

Source: Bureau of Labor Statistics, Organization for Economic Co-operation and Development.

III . INFLATION

Continued increase in the average price level for all goods and services

1. PRICE INDEX

The percentage ratio of the weighted average prices of one period to the weighted average prices of the base period.

How is the price level determined? Measuring the price level is important for two reasons. First, it is important for us to know how the price level has changed over a certain period of time. Second, since GNP represents the market value, or otherwise the monetary value, of all final goods and services produced during the year, monetary measures are used as the most common indicators in reducing the disparate components of total output to a single basis.

The price level is expressed as an index. Price index is a measure of the relationship between the total price of a certain set of goods and services, called the “market basket,” for a given time period and the total price of an identical or similar group of goods and services in the base period. This benchmark, or starting level, is called the “base year.” If we present this in the form of a formula, we get:

Market basket price

in a given year x 100

Price index = Price similar to market

in a given year baskets in a base year

The best known among these indices is consumer price index (CPI) –price index calculated for a group of goods and services included in the consumer basket of the average urban resident. In the United States, the consumer price index is calculated based on the prices of 265 goods and services in 85 cities across the country. In general terms, the consumer price index can be represented as the ratio of the base year consumer basket, valued at current prices, to the base year consumer basket, valued at base year prices.

Consumer basket at current prices x 100

Consumer index = Consumer basket

prices in base year prices

If we assume that the consumer basket consists of only three goods, then the calculation of the consumer price index will look like it is presented in the table.

CPI = 4100\1950 x 100 = 210.2

The Consumer Price Index is the most widely used price index. It plays a vital role in the economy as it is the basis for the recalculation of wages, government payments and many other payments.

Since the consumer price index plays such an important role, the economy needs a unified method for calculating it, which at the same time would objectively reflect changes in the price level. So, for example, if when calculating the PPI, only a limited number of goods and services related to the minimum consumer level are taken, then, accordingly, the price change index will be smaller and the increase in wages will not be able to compensate for the increase in inflation, and this, in turn, may eliminate incentives to work. A similar situation may arise if the consumer basket includes all goods and services produced in the country. In this case, with a high degree of centralization, there will necessarily be a redistribution of rising prices for consumer goods between, for example, goods such as tarpaulin boots, Kalashnikov assault rifles, the prices of which the government can artificially reduce.

The calculation method itself also plays an important role. For example, let's look at the method for calculating PPI, which is correct from a mathematical point of view and is recommended for calculating PPI, but gives a slightly different result than in the previous case. The starting formula is as follows:

CPI = price of food 1992\price of food 1982 x 100 x share of food +

Price of clothes 1992\price of clothes 1982 x 100 x share of clothes +

Housing price 1992 \ housing price x 100 x housing share.

By determining the share of each group in the consumer basket and substituting prices, we get:

CPI = 5\2 x 100 X 0.46 + 10\5 x 100 x 0.35 + 20\10 x 0.18 = 116.25 + 69.80 + 37.20 = 223.25

Statistical accuracy requires a single base when calculating indices, and in this regard, the consumer price index is based on a single base - the base year's production volume in the first case, or the single shares of individual goods in the consumer basket in the second case. In this regard, the consumer price index does not reflect how changes in price affect changes in the share of consumption of a particular product. In addition, the price index is not able to estimate what share in the price increase is occupied by qualitative improvements in the product. For example, a car made in 1950 and a car made in 1992 have significantly different quality characteristics. The CPI differs from the GNP deflator in that the GNP deflator estimates the value of current output at current prices. In addition, the GNP deflator is associated with goods and services that form GNP, and the CPI is associated only with those goods and services that are included in the consumer basket.

2. MEASURING INFLATION

Inflation is measured using a price index. For example, in 1987 the consumer price index was 113.6, and in 1988 it was 118.3. The inflation rate for 1988 is calculated as follows:

Inflation rate = 118,3 113,6 x 100 + 4.1%

The so-called “magnitude rule of 70” allows you to quickly calculate the number of years required for the price level to double. You just need to divide the number 70 by the annual inflation rate:

Approximate number of years

required to double the pace = 70 .

inflation rate of annual increase

price level (%)

3. CAUSES OF INFLATION

Economists distinguish two types of inflation.

3.1 Demand inflation . Traditionally, changes in the price level are explained by excess aggregate demand. An economy may try to spend more than it can produce; it may tend to some point outside its production possibilities curve. The manufacturing sector is unable to respond to this excess demand by increasing real output because all available resources have already been fully used. Therefore, this excess demand leads to inflated prices for a constant, real volume of production and causes demand inflation. The essence of demand inflation is sometimes explained in one phrase: “Too much money chasing too few goods.”

At a constant price level, nominal and real GNP increase by the same amount. But with premature inflation, nominal GNP must be “deflated” to determine changes in output in physical terms. With “pure” inflation, nominal GNP will increase, sometimes at a rapid pace, while real GNP remains unchanged.

3.2 Inflation caused by rising production costs, or a decrease in aggregate supply . Inflation can also result from changes in costs and supply in the market. There have been several periods in recent years when the price level has risen, despite the fact that aggregate demand was not excessive. There were periods when both output and employment (evidence of insufficient aggregate demand) decreased while the general price level increased.

Theory inflation caused by rising costs , explains the rise in prices by such factors that lead to an increase unit costs. Unit costs are the average costs for a given volume of production. Such costs can be obtained by dividing the total cost of resources by the amount of output produced, that is:

Cost per unit = total costs

products number of product units

Increasing unit costs in the economy reduces profits and the amount of output that firms are willing to offer at the existing price level. As a result, the supply of goods and services throughout the economy decreases. This decrease in supply, in turn, increases the price level. Therefore, according to this scheme, costs, and not demand, inflate prices, as happens with demand inflation.

3.2.1 INFLATION CAUSED BY INCREASING SALARS. Inflation caused by rising wages is a type of inflation caused by rising costs. Under certain circumstances, trade unions can become a source of inflation. This is because they exercise some degree of control over nominal wages through collective bargaining agreements. Let's assume that the big unions demand and get big wage increases. Moreover, let's assume that with this increase they will set a new standard for the wages of workers who are not union members. If a national wage increase is not counterbalanced by some countervailing factor, such as an increase in output per hour, then unit costs will increase. Manufacturers will respond by reducing the production of goods and services released onto the market. Assuming constant demand, this decrease in supply will lead to an increase in the price level. Because the culprit is excessive increases in nominal wages, this type of inflation is called wage inflation, which is a type of cost-push inflation.

3.2.2 INFLATION CAUSED BY DISRUPTION OF THE SUPPLY MECHANISM. The other main type of cost-push inflation is usually called supply-side inflation. It is a consequence of an increase in production costs, and therefore prices, which is associated with a sudden, unforeseen increase in the cost of raw materials or energy costs. A convincing example is the significant increase in prices for imported oil in 1973–1974. and in 1979 – 1980. As energy prices increased during this time, the production and transportation costs of all output in the economy also increased. This led to rapid growth in cost-driven inflation.

3.3 Difficulties .

In the real world, the situation is much more complex than the proposed simple division of inflation into two types - demand-driven inflation and cost-driven inflation. In practice it is difficult to distinguish between the two types. For example, suppose military spending increases sharply and, therefore, greater demand incentives operate in the goods and resource markets, some firms find that their costs for wages, materials, and fuel increase. In their own interests, they are forced to raise prices because production costs have increased. Although there is clearly demand-pull inflation in this case, for many businesses it looks like cost-push inflation. It is difficult to determine the type of inflation without knowing the primary source, that is, the real reason for rising prices and wages.

Most economists believe that cost-push inflation and demand-pull inflation differ in another important respect. Demand-pull inflation continues as long as there is excessive total spending. On the other hand, inflation caused by rising costs automatically limits itself, that is, it either gradually disappears or heals itself. This is because as supply decreases, real national output and employment are reduced, limiting further increases in costs. In other words, cost-driven inflation generates a recession, and the recession, in turn, restrains additional increases in costs.

4. COSTS OF INFLATION

Negative consequences associated with a long-term increase in the average price level.

One of the main negative phenomena is the effect of redistribution of income and wealth. This process is possible, first of all, in conditions where income is not indexed, and loans are provided without taking into account the expected level of inflation. Another serious consequence of inflation is the inability to make absolutely correct decisions when developing capital investment projects, which reduces interest in financing them. The damage from inflation is directly related to its size. Moderate inflation does not bring harm; moreover, the reduction in inflation is associated with an increase in unemployment and a reduction in the real national product. The greatest harm is caused by hyperinflation, the appearance of which is associated with social cataclysms and the rise to power of totalitarian regimes.

4.1 The impact of inflation on redistribution.

The relationship between the price level and the volume of national production can be interpreted in two ways. Typically, real national output and the price level rose or fell simultaneously. However, in the last 20 years or so, there have been several instances where real national output has fallen while prices have continued to rise. Let's forget about this for a moment and assume that at full employment real national output is constant. By holding real national output and income constant, it is easier to isolate the impact of inflation on the distribution of these incomes. If the size of the pie—national income—is constant, how does inflation affect the size of the pieces that go to different segments of the population?

It is critical to understand the difference between monetary, or nominal, income and real income. Cash or nominal income is the number of dollars a person receives in the form of wages, rent, interest, or profit. Real income determined by the number of goods and services that can be purchased with the amount of nominal income. If your nominal income increases at a faster rate than the price level, then your real income will rise. Conversely, if the price level rises faster than your nominal income, then your real income will decrease. The measurement of real income can be roughly expressed by the following formula:

Real measurements = nominal measurements - changes in

income (%) income (%) price level (%)

The very fact of inflation - a decrease in the purchasing power of the dollar, that is, a decrease in the number of goods and services that can be bought with a dollar - does not necessarily lead to a decrease in personal, real income, or standard of living. Inflation reduces the purchasing power of the dollar; however, your real income, or standard of living, will only decline if your nominal income lags behind inflation.

It should be noted that inflation affects redistribution differently depending on whether it is expected or unexpected. In the event of expected inflation, the income recipient can take steps to prevent or reduce the negative effects of inflation that would otherwise affect his real income. .

Inflation punishes:

People who receive relatively fixed nominal incomes. Congress introduced indexation of Social Security benefits; Social Security payments take into account the consumer price index to prevent the ravages of inflation.

Some hired workers. Those who work in unprofitable industries and lack the support of strong, militant trade unions.

Owners of savings. As prices rise, the real value, or purchasing power, of your rainy day savings will decrease. Of course, almost all forms of savings earn interest, but nevertheless, the value of savings will fall if the rate of inflation exceeds the interest rate.

Benefits from inflation can go to:

People living on unfixed incomes. The nominal incomes of such families may overtake the price level, or cost of living, causing their real incomes to increase.

Firm managers and other profit recipients. If the prices of finished products rise faster than the prices of inputs, then the firm's cash receipts will grow at a faster rate than its costs. Therefore, some earnings in the form of profits will outpace the rising tide of inflation.

Inflation also redistributes income between debtors and creditors. In particular, unexpected inflation benefits debtors (loan recipients) at the expense of creditors (lenders).

4.2 Expected inflation

The distributional consequences of inflation would be less severe and even avoidable if people could 1) anticipate inflation and 2) be able to adjust their nominal incomes to account for impending changes in the price level. For example, persistent inflation that began in the late 1960s led many unions in the 1970s to insist that labor contracts include cost-of-living amendments that automatically adjust workers' earnings for inflation. If you anticipate the onset of inflation, you can also make changes to the distribution of income between the creditor (lender) and the debtor (recipient of the loan). For this reason, savings and loan institutions introduced variable rate mortgages to protect themselves from the negative effects of inflation. There is a difference between the real interest rate, on the one hand, and the money, or nominal, interest rate, on the other.

Real interest rate is the percentage increase in purchasing power that the lender receives from the borrower.

Nominal interest rate- This is a percentage increase in the amount of money that the lender receives.

So, for example, for a lender to receive a 5% real profit on a loan given an assumed inflation of 6%, he should be assigned a nominal interest rate of 11%. In other words, the nominal interest rate is equal to the sum of the real interest rate and the premium paid to offset the expected rate of inflation.

4.3 The influence of inflation on the volume of national product

Let's consider three models, in the first of which inflation is accompanied by an increase in the volume of national production, and in the other two - by a decrease.

4.3.1 THE CONCEPT OF DEMAND DEMAND INFLATION suggests that if an economy strives for high levels of output and employment, then moderate inflation is necessary.

Moderate inflation – This is inflation, in which price increases are about 10% annually, and does not cause serious concern to the population and entrepreneurs, since the interest rate on the capital markets is quite high, which allows contracts to be concluded in nominal terms.

4.3.2 COST-DRIVEN INFLATION AND UNEMPLOYMENT. Let's consider the circumstances under which inflation can cause a reduction in both output and employment. Assume that, from the outset, spending is such that the economy has full employment and a stable price level. If inflation begins, caused by rising costs, then at the existing level of aggregate demand, the real volume of production will decrease. This means that rising costs will cause a sharp increase in prices and, given the total costs, only part of the real product can be purchased on the market. Consequently, real output will decrease and unemployment will increase.

4.3.3 HYPERINFLATION. Proponents of the concept of cost-push inflation argue that moderate, creeping inflation, which may initially accompany an economic recovery, then snowball, will turn into more severe hyperinflation, those. into inflation, in which price increases reach a tenfold or greater annual increase. It leads to the destruction of the well-being of the nation and is often the basis for changing the regime of power, usually of a totalitarian nature.

To prevent unused savings and current income from becoming worthless, that is, to get ahead of expected price increases, people are forced to “spend money now.” Businesses do the same when purchasing investment goods. Actions dictated by “inflationary psychosis” increase pressure on prices, and inflation begins to “reproach itself.”

CRASH. Hyperinflation could accelerate economic collapse. Severe inflation contributes to the fact that efforts are directed not to production, but to speculative activity. It is becoming increasingly profitable for businesses to stockpile raw materials and finished products in anticipation of future price increases. But the discrepancy between the quantity of raw materials and finished products and the demand for them leads to increased inflationary pressure. Instead of investing capital in investment goods, producers and individuals, to protect themselves from inflation, acquire non-productive material assets - jewelry, gold and other precious metals, real estate, etc.

In an emergency, when prices rise sharply and unevenly, normal economic relations are disrupted. Money actually loses value and ceases to fulfill its functions as a measure of value and a medium of exchange. Production and exchange are suspended, and economic, social, and very possibly political chaos may eventually ensue. Hyperinflation precipitates financial collapse, depression, and social and political unrest.

Catastrophic hyperinflation is almost always the result of a government's reckless expansion of the money supply.

CONCLUSION

1. The economy is characterized by fluctuations in the volume of national product, employment and price levels. Although economic cycles always have the same phases - peak, decline, recovery, recovery - cycles differ from each other in intensity and duration.

2. Although such initial causal factors as technical innovations, political events, and money accumulation have been used to explain the cyclical development of the economy, it is generally believed that the direct determinant of national output and employment is the volume of total expenditure.

3. All sectors of the economy are affected differently and to varying degrees by the business cycle. The cycle has a stronger impact on output and employment in industries producing capital goods and durable goods than in industries producing nondurable goods.

4. Economists distinguish three types of unemployment: frictional, structural and cyclical. It is now believed that full employment, or the natural rate of unemployment, is complicated by the fact that there are part-time workers and those who have given up hope of getting a job.

5. The economic costs of unemployment, expressed in the lag in the volume of GNP, are the goods and services that society loses when its resources are in forced downtime. Okun's Law states that a one percent increase in unemployment above the natural rate results in a 2.5 percent increase in the GNP gap.

6. There is a huge difference in unemployment and inflation rates in different countries. Unemployment rates differ because countries have different natural unemployment rates and are often in different phases of the business cycle.

7. Economists distinguish demand-side inflation from cost-push inflation (supply inflation). There are two types of cost-push inflation: wage-push inflation and supply-side inflation.

8. Unanticipated inflation arbitrarily redistributes income to the detriment of recipients of financed income, creditors and savers. In anticipation of inflation, individuals and firms can take steps to reduce or eliminate its negative effects.

9. The concept of demand-pull inflation suggests that if an economy strives for high levels of output and employment, then moderate inflation is necessary. However, proponents of cost-push inflation argue that inflation can be accompanied by a decline in real national output and employment. Hyperinflation, which is usually associated with unwise government policies, can undermine the financial system and precipitate collapse.

BIBLIOGRAPHY

1. ECONOMICS, PRINCIPLES, PROBLEMS AND POLICIES, Campbell R. McConnell, Stanley L. Brew, Republic Publishing House, Moscow, 1995

2. ENGLISH-RUSSIAN DICTIONARY REFERENCE, Edwin J. Dolan, B. Domnenko, Lazur Publishing House, Accounting, Moscow, 1994

3. FUNDAMENTALS OF MODERN ECONOMY, V.M. Kozyrev, Publishing House "Finance and Statistics", Moscow, 1998

Inflation is usually defined as an increase in the average price level (an increase in the average price level). This definition of inflation says nothing about its mechanism, causes and consequences. The question arises: can any price increase be considered inflation? It must be borne in mind that inflation refers to an increase in the general price level, and not an increase in prices for certain types of goods, which can be offset by a decrease in the prices of other goods. In the latter case, there is a change in the price structure, which may be quite normal for a market economy.

It should be emphasized that the price level is not the price of a specific product, but a statistical construct calculated as an index of growth in the weighted average prices of a certain set of goods. If we seek to measure the dynamics of the cost of living, we take into account the prices of consumer goods and services; if we are interested in the dynamics of production costs, then the weighted average price reflects the prices for the main types of raw materials, materials, fuel, etc.

There is an opinion that a one-time upward movement of prices (caused, for example, by rising prices for imported raw materials, the elimination of subsidies, changes in the taxation system) cannot be considered inflation, since after the formation of a new level and price structure in the short term, the reasons causing the upward movement of prices cease to operate .

Inflation appears when an inflationary surge sets in motion a constant cumulative rise in prices. However, in practice it is quite difficult to distinguish between inflation and an inflationary surge. In practice, inflationary surges appear very often, and the “short” period of achieving a new structure and price level can last several years. The only conclusion arising from the above is the need to identify the causes (sources) of inflation and the mechanism of the inflation process.

Various types of inflation can be classified not only from the point of view of the reasons for its occurrence, but also according to other criteria.

From the point of view of quantitative indicators of price growth rates, there is a 3-5% increase in prices per year (creeping inflation), 5-10% (walking inflation), 10-15% (galloping inflation), 50-200% (megainflation), 200 % and higher (hyperinflation). This is by no means a rigid classification, but rather an attempt to unify the various terms found in the economic literature. However, what is important is that the sources, mechanisms and socio-economic consequences may differ significantly in all of the above cases. Creeping inflation is not associated with serious economic difficulties. It is generally accepted that a 20% annual inflation rate is the goal that countries must achieve to stabilize their hyperinflationary economies. It is assumed that this level of inflation does not disrupt the normal functioning of the market, unlike hyperinflation, which, being associated with a disorder of the monetary and financial system, inevitably causes significant damage to the development of market conditions.

From the point of view of the influence of inflation on the price structure, balanced and unbalanced inflation are distinguished. With balanced inflation, when prices for various product groups grow at the same rate, the price structure does not change. In the case of unbalanced inflation, the price structure is constantly changing.

From the point of view of the coincidence of expected and actual inflation, predicted and unpredictable inflation are distinguished.

In the first two decades after the Second World War, the slow rate of price growth did not receive a negative assessment in the economic literature. Moreover, many well-known economists have expressed the view that a moderate rate of inflation favors maintaining a good business environment, has a positive effect on the level of profits in the sphere of material production, and helps maintain investor optimism. It was also emphasized that a constant rise in prices favors the stabilization of the economy, since it mitigates the occurrence of crises of overproduction.

However, the view that inflation has a positive effect has faced criticism, which has argued that the basis for a benign assessment of inflation is the conflation of periods of high market conditions with periods of rising prices (and crises with deflation). As inflationary trends intensified, the following negative consequences began to stand out more and more clearly:

1. Inflation complicates economic calculations. One of the main functions of the market mechanism is to provide economic entities with information about the availability of resources, the level of production costs, etc. This information is contained in absolute and relative prices. In conditions of inflation, especially if it develops at a rapid pace, prices usually do not change in the same proportions, and sometimes they even change in different directions. It is difficult to determine whether these price changes are caused by inflationary factors, or whether they are a consequence of changes in basic economic conditions (changes in consumer preferences, technology development, etc.). Inflation distorts market information, which leads to decision-making and distortion of the structure of production and consumption.

2. Inflation weakens the propensity to save and thereby limits the possibility of economic growth financed from this source. “Flight from money,” observed in conditions of rapidly rising prices, is a fairly well-known phenomenon in practice. As a result, excessive accumulation of material assets, both by individual consumers and entrepreneurs, leads to waste, increased shortages in general, and disorganization of the economic system. Inflation increases the unpredictability of decision-making (it is not known how prices will rise), which leads to a decrease in the interest of entrepreneurs in long-term investment projects.

3. Inflation leads to the redistribution of income between different groups of the population. As a result of inflation, the real incomes of population groups that receive constant nominal incomes and do not have leverage on the government to index them accordingly are reduced. Inflation leads to an inevitable redistribution of resources from all holders of cash to money suppliers, i.e. state and commercial banks. Thus, it forms a kind of inflation tax on the purchasing power of cash held by various business entities. The state can, within certain limits, through excessive emission of money, redistribute part of the total social product, in other words, encourage a forced expansion of savings in society, and direct additional savings to finance social services, defense, servicing external debt, etc.

The severity of the socio-economic consequences largely depends on whether inflation is predictable or not. The problem of the mechanism for the formation of inflation expectations occupies an important place in the theory of inflation. If price increases are timely and adequately perceived by business entities, then the negative consequences of inflation can be limited by bringing nominal values ​​(wages, interest rates, taxes, etc.) into line with the rate of price growth. However, the higher the inflation, the greater the obstacles to the timely and adequate formation of inflation expectations, which makes it difficult for business entities to make the necessary decisions.

The implementation of anti-inflationary policy affects the state of market conditions. Consequently, anti-inflationary policy should be an element of a broader strategy, which will take into account other important socio-economic goals, including the fight against unemployment.

Labor resources include the able-bodied population seeking to have a job under certain standard conditions (including wages) existing in the economy.

From this definition it follows that labor resources are part of the working population. The relationship between labor resources and the size of the working-age population is called the professional activity coefficient.

The value of this coefficient depends on a number of factors: the level and dynamics of wages, the population’s preferences in matters of education, family models, raising children, the average number of children in families, and the ability to find work.

Labor resources include a group of persons involved in economic activity (employees or self-employed persons), i.e. employed, and a group of people who were unable to find a job, i.e. unemployed.

It follows from this that the size of unemployment is determined by three factors: the coefficient of professional activity, the size of the working population and the size of employment. In the short term, the first two factors are more stable compared to the third. Therefore, changes in the size of unemployment are determined, first of all, by changes in the size of employment.

The definition of unemployment as a part of the working-age population that does not have a job, but strives to get it under certain standard conditions currently existing in the economy, is quite one-sided, since it does not reflect a number of significant processes inherent in the labor market. Even when the level of unemployment remains unchanged, significant changes occur in the labor market associated with the emergence of new jobs, the dismissal and hiring of workers. In order to reflect these processes, it is necessary to consider unemployment not just from the point of view of the quantitative size of unemployment, but also from the point of view of the various flows of labor resources in the labor market.

The influx from the employment sector can be divided into three parts: group layoffs, individual layoffs and voluntary separation from work. The expansion of unemployment, in addition to the influx from the labor force, is due to persons entering the labor market for the first time (mainly school graduates), as well as those who remained outside the labor force for a certain time, and then again attempted (unsuccessfully) to find a job . If we are talking about the outflow from unemployment, then we should distinguish between the unemployed getting a job and the unemployed leaving the labor force. In the latter case, we mean the transition to retirement, the abandonment of any search for work, due to the loss of hope of getting one.

Thus, the unemployment rate fluctuates depending on the ratio between inflows into and outflows from it. Ultimately, an increase in unemployment may be due to: a) an increase in inflows into it and b) a reduction in outflows from it.

In the literature one can find various classifications of types of unemployment. Let's pay attention to the most common of them. In accordance with it, frictional, structural and cyclical unemployment can be distinguished.

Frictional unemployment is temporary unemployment associated with waiting for work or the worker moving from one job to another.

Structural unemployment is unemployment that occurs as a result of changes in the structure of consumer demand for goods and services, replacement of technology, or structural changes in an industry.

Cyclical unemployment is a type of unemployment caused by the onset of a crisis phase of the economic cycle, when the aggregate demand for goods and services declines sharply.

State policy in the labor market can be active, aimed at limiting unemployment, and passive, aimed at social assistance to the unemployed.

An active labor market policy is based on the use of a number of economic instruments. It is possible to distinguish between macro and micropolitics.

Macroeconomic policy is the use of monetary and fiscal instruments to stimulate aggregate demand.

Micropolicy covers a set of instruments, the use of which is aimed at improving the functioning of the labor market and reducing unemployment in certain groups of the labor force. This policy is aimed at reducing, first of all, frictional and structural unemployment. The list of its instruments should include, firstly, employment programs, which consist of the state creating additional jobs for certain groups of the unemployed. Secondly, subsidies are allocated to those enterprises that refuse the planned reduction in employment or create new jobs. Thirdly, a system of advanced training and retraining of personnel is being organized. Fourth, measures are being taken to develop the labor market infrastructure (labor exchanges, timely and complete collection of available information about jobs, etc.) Fifthly, the state can use various methods to reduce working time (for example, expanding staff, dividing one workplace between several part-time workers).

Passive government policy in the labor market includes various forms of financial assistance to the unemployed (benefits for the unemployed, one-time compensation for dismissal, subsidies for early retirement).

Cyclicality of economic development.
Unemployment and its types. Consequences of unemployment.
Inflation: definition, principles, types, consequences.

1. Cyclical nature of economic development

A market economy is characterized by macroeconomic instability, expressed in periodic ups and downs in economic activity, which shapes the economic cycle. Macroeconomic equilibrium acts as a desired state, as a trend, an ideal towards which the real economy strives. The functional forms of instability are cyclical declines in production, unemployment and inflation.

An economic cycle is a time interval between two qualitatively identical states of economic conditions.

Reasons for cyclicity:
External or external:
wars, revolutions, major social, political, demographic natural shocks).
Internal or internal:
physical contribution of fixed capital,
changes in consumer and investment spending,
change in government policy.
Synthesis of external and internal causes
External causes produce the initial impulses to start the economy, and internal factors turn them into a cycle of fluctuation.

The cycle and its phases.

The graph shows a 4-phase business cycle model. It distinguishes the following phases:
I - economic recovery.
The national product, the volume of investment, the capital stock of the economy are growing, inventories of unsold products are decreasing, unemployment is decreasing and inflation is increasing.
The phase ends with point A (peak, boom point), at which full employment is observed, and the price level, interest rate and wages are at their maximum.
II - recession (crisis) of the economy.
Fall in production growth, rising unemployment, reduction in investment, prices and wages).
III - depression.
National income and GDP continue to decline. At point B (economic bottom), the unemployment rate reaches a maximum, the price level, wages and interest rates are minimal, and the volume of investment approaches zero.
IV - revival.
Production volume and GDP begin to grow. Unemployment decreases, investment volumes, interest rates and price levels increase.

Types of cycle (classification according to certain characteristics).
By duration
a) short-term (3.4 years)
b) medium-term (up to 20 years)
c) long-term (40-60 years).

By activity environment
a) industrial
b) agricultural

According to the specifics of manifestation
a) oil
b) food
c) energy
d) raw materials
e) economic
e) currency

By spatial ghost
a) national
b) international.

2. Unemployment and its types. Consequences of unemployment

From the point of view of employment and unemployment, the country's population can be classified according to the following scheme:

The institutional population is people who have not reached working age, have retired, are in hospitals, etc.
The non-institutionalized population is the working-age population.
The economically inactive population is the working-age part of the population that is not employed and is not looking for hired work.
The economically active population is the employed and the unemployed.
Busy people have a job.
A person is considered unemployed if he does not work anywhere, but is actively looking for work.

The unemployed do not include:
people of retirement age;
carers at home for children;
stopped looking for work;
not working for any reason not stated above.

Types of unemployment:
By duration of existence:
Short term;
Long-term;

Depending on the nature of the manifestation:
Open;
Closed (hidden).

Ratio of unemployed to employment:
Valid;
Fictitious.

Types of unemployment:
Frictional - associated with searching for or waiting for work.
Structural - associated with the need to change a specialty or preparation, with additional training.
Natural is the sum of structural and frictional (as a rule, it is 5 - 6%, present in any market economy)
Cyclical - associated with short-term economic cycles, arises due to the fact that a reduction in aggregate demand for goods and services causes a decrease in employment and unemployment demand.

The unemployment rate is the share of unemployed people in the total economically active population (labor force).

Where:
Z - busy;
B - unemployed;
RS - labor force, RS=Z+B

Consequences of unemployment
Economic.
Part of the potential volume of production of goods and services is lost without compensation; the production capabilities of the economy are not fully realized.
There is a certain economic relationship between the unemployment rate and the volume of GDP produced, known as Okun's law. This law states that an excess of the actual unemployment rate by 1% above its natural level leads to a decrease in actual GDP from 2x to 3x%.
Okun's law reflects the following equality:

Where:
Y* - potential GDP;
Y - actual GDP (at the moment);
β - Okun's coefficient or empirical coefficient of sensitivity of GDP to the dynamics of cyclical unemployment (can be from 2x to 3x%, usually 2.5% is accepted);
u is the actual unemployment rate (at the moment);
u* is the natural rate of unemployment.

Social:
1.loss of qualifications or self-esteem
2. complete and partial loss of income
3.decrease in living standards.

Moral and ethical.

Regulation of unemployment.
in social policy.
It is intended to provide assistance to the unemployed in order to maintain their standard of living.
in macroeconomic policy.
Providing assistance to the unemployed involves the implementation of monetary and fiscal measures to reduce unemployment.
employment policy.
It involves the creation of new jobs, a personnel retraining system, and employment centers.

3. Inflation: definition, principles, types, consequences

Inflation is a situation in the economy in which there is an increase in the price level and (or) depreciation of the money supply in the economy.

Types of inflation:
Hidden (suppressed).
This inflation is associated with a shortage of goods and services, or with a deterioration in their quality, or with the establishment of upper price limits by the state.
Open inflation.
It is characterized by an increase in the price level and does not destroy the market mechanism.

Open inflation comes in the following forms:
- inflation on the demand side (buyer inflation). It is characterized by an excess of aggregate demand compared to aggregate supply, i.e. the economy wants to consume more than it produces.
-inflation on the supply side (seller inflation). Characterizes an increase in the price level due to an increase in production costs, i.e. raw material costs, energy costs.

Inflation classification:

1. depending on the tempo:
1.moderate or creeping (~10%)
2.galloping (~200%)
3.hyperinflation (from several hundred to several thousand or more than 200%).
2. according to the degree of synchronicity:
1. balanced
Accompanied by a uniform, moderate rise in prices.
unbalanced
Accompanied by an uneven, abrupt rise in prices.
3. by degree of predictability:
1.expected
2.unexpected.

Causes of inflation:
Central bank policy.
Budget deficit.
Militarization of the economy
Market monopolization:
Monopolization of the market by the manufacturer
Monopolization by the trade union
High tax penalties
Public Policy Uncertainty
External economic factors

Consequences of inflation:
Deformation of the market pricing mechanism
Redistribution of income and wealth
Decline in real income of the population
Depreciation of household savings
Deterioration of living conditions of some social groups
Destabilization of the economy

In conditions of inflation, not all prices change equally, since the rate of increase in prices for consumer goods always differs from the rate of increase in prices for industrial goods.
The inflation rate is defined as the ratio:

Where:
Рit - price level in the current period;
Pi0 is the price level in the base period.

The rate of inflation varies depending on the changing phases in economic development. Inflation is replaced in the depression stage and at the lowest point. Inflation accelerates during the economic recovery phase.
Inflation originates in the money market, and then gradually all the others occur (commodity market, labor market, etc.)

The relationship between inflation and unemployment. Phillips curve.


In the short term, there is an inverse relationship between inflation and unemployment. Point 1 is characterized by high unemployment and low inflation.
Point 2 is characterized by high inflation and low unemployment.
In the long term, with high unemployment, prices also begin to rise.