If inflation is caused by a decrease in aggregate supply (which occurs as a result of an increase in costs), then this type of inflation is called costpush inflation.

Cost-push inflation leads to a situation of stagflation—a simultaneous decline in production and an increase in the price level.

Cost-push inflation is a type of inflation caused by causes on the aggregate supply side. Cost-push inflation occurs as a result of a reduction in aggregate supply due to an increase in the cost of production per unit of output.

Graphically, cost-push inflation is depicted using the AD-AS model.

The AS curve, under the influence of rising unit costs, shifts to the left, which causes a reduction in production volume while simultaneously increasing the price level.

What causes costs to rise? First of all, let's note monopoly! But it is no longer the state, but the monopoly of firms and trade unions.

Monopoly of firms. A significant part of products in the modern world is produced in industries with an oligopolistic market structure. Oligopolists have power over prices; prices are maintained due to underproduction of products compared to the competitive and potential output volume, as well as due to barriers to entry into the industry, primarily based on monopoly ownership of resources. There is an overvaluation of resources in relation to their marginal productivity due to artificial underproduction. Spread throughout the economy, distorted price signals with each production cycle tend to set prices higher than what prices should be at a given level of technological development.

A similar driver of cost-push inflation is the degree of price power foreign firms have, leading to imported inflation through price shocks. Imported inflation refers to inflation that penetrates the country's economy from abroad through the prices of foreign goods. Thus, if the country’s economy widely uses imported resources in production, then their sharp rise in price will lead to an increase in costs within the country and to a reduction in total production while prices rise.

The monopoly of trade unions is manifested in the area of ​​pricing in the labor market. Strong trade unions put pressure on entrepreneurs to increase wages, or reduce the supply of skilled professions, which also pushes wages up. Entrepreneurs' costs for labor services are increasing, and the high cost of production makes its expansion unprofitable. Aggregate supply begins to decline, despite the fact that aggregate demand remains at the same level, and sometimes grows.

Let us consider graphically the impact of cost inflation on real production. The initial production volume is Y at the price level P. Under pressure from trade unions, wages increase. Entrepreneurs, faced with rising costs, reduce production: the AS1 curve shifts to the left to AS2. Real output Y1 fell to Y2, and the price level rose to P2. Whether cost-push inflation will develop further depends on the government. If it dares to allow a decline, then a further reduction in Y will entail a fall in wages and the price level. Costs will be reduced, and the AS2 curve will be able to return to the AS1 level. But, as a rule, the government chooses popular measures and, in order to prevent a recession, stimulates aggregate demand through emission pumping. Graphically, the expansion of aggregate demand will be expressed in a shift from AD1 to AD2. As a result, real production will return to the previous level Y1, but prices will rise to the level P3.

“Accordingly,” subsequent labor contracts will be concluded at a higher nominal salary rate, which will again cause an increase in costs, a reduction in real production volume and a further increase in prices. THIS IS HOW THE INFLATIONAL SPIRAL OF “SALARIES – PRICES” UNLOCKS. The mechanism of cost-push inflation is characterized by the fact that initially, as a result of rising costs, the price level rises, and only then the money supply expands.

INFLATION SPIRAL - rising wages and rising prices mutually spurring each other. In connection with rising prices, workers demand higher wages and incomes, but rising incomes increase the money supply, which leads to a further rise in prices.

ATTENTION! All tasks are completed in handwritten form. ALL TABLES are filled in manually

ATTENTION! All tasks are completed in handwritten form. ALL TABLES are filled in manually

4.2.1 Cost-push inflation will be expressed graphically as:

a) a shift in the aggregate supply curve to the left; at the same time, prices will rise and production volume will decrease

b) a shift of the aggregate supply curve to the right;

c) establishing a new equilibrium with a smaller volume of production;

d) establishing a new equilibrium with a larger volume of production.

4.2.2 Signs of open inflation include:

a) the presence of queues;

b) commodity shortage;

c) rise in price of the consumer basket;

d) decrease in the purchasing power of the monetary unit.

Open inflation - inflation due to rising prices of consumer goods and production resources.

4.2.3 According to inflation rates, there are:

a) rampant inflation;

b) hyperinflation;

c) jumping inflation;

d) creeping inflation.

4.2.4 Causes of inflation include:

a) scientific and technological progress;

b) monopolism of enterprises, trade unions, and the state;

c) growth in labor productivity;

d) militarization of the economy.

4.2.5 Manifestations of hidden inflation are:

a) rising prices;

b) shortage of goods; hidden inflation arises as a result of a commodity shortage, accompanied by the desire to keep prices at the same level

c) reduction in product quality;

d) growth in product range.

4.2.6 The characteristics of hyperinflation include:

a) price increases of over 50% per month;

b) price growth by 135% per year;

c) price increases of more than 200% per year; hyperinflation manifests itself in prices rising by 10 times more

d) price increases by 50% per year.

4.2.7 Cost-push inflation leads to:

a) growth in national production volumes;

b) reduction in production volumes;

c) reduction of prices in the economy;

d) rising prices. Cost-push inflation is inflation manifested in rising prices for resources and factors of production. Cost-push inflation occurs as a result of a decrease in aggregate supply and is accompanied by a reduction in real output and employment, and an increase in the unemployment rate.

4.2.8 One of the effects of unexpected inflation is that there is a redistribution of wealth from:

a) borrowers to lenders;

b) lenders to borrowers; Unexpected inflation is a level of inflation that is unexpected for most entrepreneurs and leads to more negative consequences than expected inflation.

c) states to the private sector;

d) young people to older people.

4.2.9 The least likely to suffer from unexpected inflation are:

a) recipients of fixed nominal income;

b) people who keep money savings under the mattress;

c) creditors;

d) borrowers of funds. Borrowers are in a better position because they are paying back money with a lower value

4.2.10 When inflation is suppressed:

a) the state takes active measures aimed at suppressing inflation;

b) there is no rise in prices, but the population is faced with a shortage of goods; Suppressed inflation - inflation controlled by commodity shortages, which leads to the accumulation of funds

c) the state legally establishes acceptable rates of inflation growth;

d) the government restrains income growth.

4.2.11 Statistics have shown that the value of the Okun coefficient is always:

a) more than two;

b) more than three;

c) are in the range from 0.5 to 2.5;

d) less than one.

4.2.12 The economy is described by the following data:

a) increased by 3%;

b) decreased by 1%; because

c) increased by 1%;

d) decreased by 2%.

4.2.13 The economy is described by the following data:

The real interest rate in the second year compared to the first:

a) has not changed;

b) increased by 2%; since 11-8=3%, 11-6=5% 5-3=2%

c) increased by 5%;

d) decreased by 3%.

4.2.14 The economy is described by the following data:

The real interest rate in the second year compared to the first:

a) increased by 1%; since it was 6-4=2%, it became 6-3=3%, 3-2=1%

b) decreased by 2%;

c) increased by 3%;

d) has not changed.

4.2.15 The economy is described by the following data:

The real interest rate in the second year compared to the first:

a) has not changed;

b) increased by 1%; was 8-2= 6%, now 10-3=7%, 7-6=1%

c) decreased by 1%;

d) increased by 2%.

4.2.16 Inflation in Russia at 9% per year can be considered:

a) hyperinflation;

b) galloping;

c) depressed;

d) creeping, since prices increased by 10% per year and the rate of income growth corresponds to the rate of price growth

4.2.17 Which of the following concepts does not apply to the phases of the business cycle:

a) inflation; Phases: recession, depression, expansion, apogee

b) recession;

d) revival.

4.2.18 During the rise period the following is observed:

a) reduction in profits;

b) growth in tax revenues;

c) fall in stock price;

d) decrease in interest rate.

4.2.19 Which of the following statements regarding the business cycle is true:

a) the highest point of activity is the period of revival;

b) recession is a period of depression;

c) consumer spending is the most unstable component of total spending;

d) all answers are incorrect.

4.2.20 An increase in the price level, accompanied by a decrease in real output, is called:

a) devaluation;

b) stagflation, Stagflation is a state of the economy in which there is a simultaneous decline in production, rising prices and unemployment, and a combination of economic crisis and inflation.

c) recession;

d) depression.

4.2.21 Let nominal income increase from $1,500 to $1,650 over the course of a year. If the price level increased by 5% during the same period, then real income:

a) will remain unchanged;

b) will increase by 5%; since 15000-100%, then 16500=110%. It turns out that income increased by 10%. 10-5=5%

c) will increase by 15%;

d) will decrease by 5%.

4.2.22 This phenomenon does not lead the economy to demand inflation:

a) increase in military spending;

b) increase in investment expenses;

c) decrease in labor productivity;

d) tax reduction.

4.2.23 The nominal income of an employee increased from 30 thousand dollars per year to 40 thousand dollars per year, the inflation rate for that period was 30%. The employee became:

a) richer than before, since 30,000-100%, then 40,000 = 133%. It turns out that income increased by 33%. 33-30=3%

b) poorer than before;

c) his welfare has not changed;

d) the data provided is not enough.

4.2.24 The Fisher effect is that:

a) the nominal interest rate increases with the growth of the real interest rate, with the inflation rate remaining constant;

b) the real interest rate increases with the increase in the nominal interest rate, with the inflation rate remaining constant;

c) changes in the expected inflation rate are determined by changes in the nominal interest rate;

d) changes in the nominal interest rate are determined by changes in the inflation rate.

4.2.25 The consequences of unexpected inflation include:

a) costs of “trodden shoes”;

b) Seignorange;

c) “menu” costs;

d) costs associated with paying taxes.

4.2.26 If potential GNP is $35 billion and actual GNP is $31 billion, the GNP gap is:

a) 3%; c) 11.4%;

b) 12.9%; d) 4%.

GNP gap = (GNP p – GNP f)/GNP p *100%=(35-31)/35*100=11.4%

4.2.27 The first economic crisis occurred:

b) in Russia;

c) in Germany;

d) in England.

4.2.28 Which of the economic phenomena does not correspond to economic growth:

a) growth of real capital;

b) increase in interest rate;

c) reduction in tax revenues;

d) reduction in the volume of unemployment benefits. Economic recovery is the state of a country’s economy, characterized by increased production, improved living standards and increased real GNP

4.2.29 The dynamics that have the strongest influence on the course of the economic cycle are:

a) net investment expenses;

b) restoration investment expenses;

c) consumer spending;

d) government spending.

4.2.30 A year or two after the end of the recession, the following is observed:

a) reduction in the level of employment;

b) reducing consumer costs for the purchase of durable goods;

c) stability or decline in profit levels;

d) all answers are incorrect.

4.2.31 In conditions of inflation when real income falls, nominal income:

a) grows;

b) falls;

c) remains unchanged;

d) there is not enough data to answer.

4.2.32 Demand inflation leads to:

a) a decrease in the price level;

b) an increase in the amount of money in circulation; Demand inflation - inflation that occurs when demand exceeds supply.

c) rising unemployment;

d) increase production.

4.2.33 One effect of unexpected inflation is that wealth is redistributed:

a) from borrowers to lenders;

b) from lenders to borrowers;

c) from young people to old people;

d) from the state to firms.

4.2.34 One effect of unexpected inflation is that wealth is redistributed:

a) from borrowers to lenders;

b) from lenders to borrowers;

c) from young people to old people;

d) from the state to firms.

4.2.35 The price increase for two periods was 21%, assuming equal price increases in the periods under study, inflation in each was __%.

4.2.36 If inflation for two months is 21%, and the monthly price growth rate was unchanged, then inflation was ___% per month.

4.2.37 Nominal GDP in the current year amounted to 64,000 den. units Real GDP 50,000 den. units Inflation for the year (in%) was ___%.

64000/50000=1,28

1,28-1=0,28*100=28%

4.2.38 The cost of the consumer basket increased from 6,000 rubles. up to 7500 rub. The inflation rate was ___%.

7500/6000=1,25 1,25-1=0,25*100=25%

4.2.39 4At a nominal interest rate of 13%, the lender received real 8%. The inflation rate was ___%.

4.2.40 Demand inflation leads to:

a) a decrease in the price level;

b) rising unemployment;

c) an increase in the amount of money in circulation;

d) growth in real GDP.

5 Equilibrium of aggregate demand and aggregate supply
(Model AD-AS)

Issues for discussion

Aggregate quantities in macroeconomics. Aggregate demand (AD) in the economy. Structure of aggregate demand. Interest rate effect. Wealth effect. The effect of import purchases. Changes in aggregate demand due to non-price factors. The role of consumer and investor expectations.

The concept of aggregate supply (AS). Aggregate supply in the short and long run. Factors of aggregate supply. Non-price factors of aggregate supply. Keynesian and classical versions of aggregate supply.

The model “Aggregate demand - aggregate supply” is presented in Figure 1. Equilibrium price level and equilibrium volume of national production. Short-term and long-term equilibrium.

Changes in balance. Shocks of supply and demand, their causes, consequences, impact on aggregate demand and aggregate supply.

An important component of the overall inflation rate is cost-push inflation. It directly affects the price of a particular product, as well as the service provided. It is its growth rate that ultimately determines the overall level of inflation, which will affect the entire economy. This indicator has a number of reasons that affect the direct rise in price of finished products.

What is cost-push inflation

Cost-cost inflation is a separate type of inflation, which represents an increase in the level of costs for the production of a product, as well as its further sale. In other words, this is the process of increasing the price of a finished product while increasing the costs of its production. This type of inflation can be characteristic of almost all industries and is actively developing in the absence of control over the level of prices for raw materials or wages of employees. To understand how important this concept is for the economy as a whole, you should carefully understand the reasons for the emergence of this process.

Causes of cost inflation

According to basic economic theory, there are two main types of inflation: demand and cost. The first type characterizes a situation when consumer demand for any manufactured product exceeds its supply on the market. The second type refers to a situation where there is an increase in the price of resources or factors of production. It has a much larger impact on the economy and requires careful analysis.

Cost-push inflation is caused by the following reasons, the main ones being:

• increase in the cost of raw materials for production and various fuels;
• raising wages under pressure from workers' unions.

When prices for raw materials or energy resources rise, the manufacturer is automatically forced to increase the cost of the finished unit of production in order to make a profit. This is especially noticeable in the case of an increase in the cost of fuels and lubricants, which cause higher transportation costs. Therefore, almost every increase in fuel prices is reflected in the price of the product after a short time.

But the second reason, associated with an increase in wages, is less typical for our country, since the trade union movement is practically not developed. The trade union's demand for an increase in wages leads to a reduction in production volumes, and this will lead to an increase in the price of the finished product while demand remains unchanged.

In addition, there are many additional reasons that stimulate this type of inflation.

Cost inflation is most clearly manifested in the presence of monopolies for one or another type of raw material. It can be regulated only with proper state control over all areas of the economy and the implementation of competent economic policy.

Factors driving cost-push inflation

Among many factors, the following may drive cost-push inflation:

1. Tax system of the country. Incorrectly calculated rates and levels of tax increases affect the company’s ability to pay them; as a result, the increased tax burden will ultimately lead to higher prices for products.
2. State customs policy. When there is a restriction on the import of any goods or duties are high, manufacturers have to pay large royalties, and compensate for the costs by increasing prices for the end consumer.
3. Economic stability of the state, in which the country does not depend on external borrowings.
4. Availability of banking resources, their favorable prices. The opportunity to obtain a loan on favorable terms will allow you to expand production or cover temporary cash gaps.

Thus, inflation is caused by factors that do not always depend on the manufacturer. Therefore, it is necessary to carry out a competent financial policy, which will help keep it at an acceptable level.

What is cost-push inflation characterized by?

As a result, this kind of price increase is characterized by an increase in the cost of a unit of output. At the same time, there is also a drop in the level of production with a simultaneous increase in unemployment. This is due to the fact that the enterprise cannot fully fulfill its obligations to tax authorities, credit organizations and ensure an acceptable level of wages. In the end, entrepreneurs are forced to stop production and completely liquidate it. And since the entire economy is interconnected, the liquidation of one may deprive another of a previously produced product, which will lead to problems with raw materials for the second. It turns out to be a typical “domino principle”.

What events are not typical for cost-push inflation?

When there is cost-push inflation, a number of different events occur in the economy. For the most part, they have a negative impact and cannot be considered positive, characterizing an improvement in the financial condition of an industry, a person or an entire country. We can say that in this case there is no reduction in the tax burden, no automatic increase in wages, and no improvement in well-being. And the situation caused by these factors can completely get out of control, lead to an increase in unemployment, the departure of many players from the market and the emergence of a large number of insolvent organizations and individuals.

What does cost inflation lead to?

The consequences can be quite serious. Here, not only the collapse of one industry can occur, but also a number of interconnected areas. Sometimes this leads to the fact that users are deprived of some type of product that was previously used and needed every day.

A small workshop for the production of bread products in a small village provided all residents with fresh baked goods. But with a sharp rise in prices for energy, fuel and taxes, the entrepreneur is forced to increase the cost of his products. Since residents' wages are not increasing, they began to buy less goods, and accordingly, after a short period of time, funds became insufficient. In order not to become bankrupt, the enterprise is liquidated, workers are fired, and residents are completely deprived of their usual product. And if the population center is remote, then delivery will ultimately make the delivered product more expensive than the pre-existing price.

In order to avoid many negative aspects and consequences, competent economic management should be carried out. But this does not relieve the manufacturers themselves of the obligation to make competent calculations and find optimal ways to solve this or that problem.

As a result of the growth of the money supply, with the volume of production unchanged, the expansion of aggregate demand from to leads to an increase in prices in the short term (from to ). Aggregate supply will respond to higher prices with a short-term expansion, which will be reflected in a shift along the curve until it intersects with the curve. An intermediate (short-term) equilibrium is created in the economy at a higher level of prices and production.

However, in the long term, when concluding contracts, workers will not agree to an already reduced real salary and, adapting to increased prices, will demand an increase in nominal salary in order to maintain the purchasing power of their earnings. An increase in nominal wages will increase the costs of entrepreneurs, which will reduce aggregate supply. The curve will shift to the left to the original output level. At the same time, prices will increase even more (to the level).

Thus, in the long run, excessive expansion of aggregate demand will lead to a new long-run equilibrium, characterized by unchanged output at an increased price level, which will be graphically expressed in a shift in equilibrium along the long-run supply curve LRAS from point 1 to point 3.

32.Supply (cost) inflation: causes , mechanism, schedule. Inflationary spiral.

Inflation represents a steady upward trend in the general price level.

Main causes of inflation:

3. Increase in aggregate demand

4. Reduction in aggregate supply

In accordance with the reason that determined the increase in the general price level, two types of inflation are distinguished: demand inflation And cost inflation.

If inflation is caused by a decrease in aggregate supply (which occurs as a result of an increase in costs), then this type of inflation is called costpush inflation. Cost-push inflation leads to a situation of stagflation—a simultaneous decline in production and an increase in the price level.

Cost inflation is a type of inflation caused by reasons on the aggregate supply side. Cost-push inflation occurs as a result of a reduction in aggregate supply due to an increase in the cost of production per unit of output.

Graphically, cost-push inflation is depicted using the AD-AS model.

The AS curve, under the influence of rising unit costs, shifts to the left, which causes a reduction in production volume while simultaneously increasing the price level.

What causes costs to rise? First of all, let's note monopoly! But it is no longer the state, but the monopoly of firms and trade unions.

1. Monopoly of firms. A significant part of products in the modern world is produced in industries with an oligopolistic market structure. Oligopolists have power over prices; prices are maintained due to underproduction of products compared to the competitive and potential output volume, as well as due to barriers to entry into the industry, primarily based on monopoly ownership of resources. There is an overvaluation of resources in relation to their marginal productivity due to artificial underproduction. Spread throughout the economy, distorted price signals with each production cycle tend to set prices higher than what prices should be at a given level of technological development.

A similar driver of cost-push inflation is the degree of price power foreign firms have, leading to imported inflation through price shocks. Imported inflation refers to inflation that penetrates the country's economy from abroad through the prices of foreign goods. Thus, if the country’s economy widely uses imported resources in production, then their sharp rise in price will lead to an increase in costs within the country and to a reduction in total production while simultaneously increasing prices.

2. Monopoly of trade unions manifests itself in the field of pricing in the labor market. Strong trade unions put pressure on entrepreneurs to increase wages, or reduce the supply of skilled professions, which also pushes wages up. Entrepreneurs' costs for labor services are increasing, and the high cost of production makes its expansion unprofitable. Aggregate supply begins to decline, despite the fact that aggregate demand remains at the same level, and sometimes grows.

Let us consider graphically the impact of cost inflation on real production. The initial output is at the price level. Under pressure from trade unions, wages increase. Entrepreneurs, faced with rising costs, reduce production: the curve shifts to the left to . Real output fell to , and the price level increased to . Whether cost-push inflation will develop further depends on the government. If it dares to allow a decline, then a further reduction in Y will entail a fall in wages and the price level. Costs will be reduced and the curve will be able to return to level . But, as a rule, the government chooses popular measures and, in order to prevent a recession, stimulates aggregate demand through emission pumping. Graphically, the expansion of aggregate demand will be expressed in a shift to . As a result, real production will return to its previous level, but prices will rise to the same level.

“Accordingly,” subsequent labor contracts will be concluded at a higher nominal salary rate, which will again cause an increase in costs, a reduction in real production volume and a further increase in prices. THIS IS HOW THE INFLATIONAL SPIRAL OF “SALARIES – PRICES” UNLOCKS. The mechanism of cost-push inflation is characterized by the fact that initially, as a result of rising costs, the price level rises, and only then the money supply expands.

33.Unemployment: definition, types, natural level, socio-economic consequences.

One of the characteristic manifestations of macroeconomic instability is the existence of an army of unemployed.

Unemployment- a social phenomenon that involves the lack of work among people who make up the economically active population.

Second category - unemployed(U). The category of unemployed includes people who do not have a job, but are actively looking for one. For example, in the United States, a person who has been actively trying to find a new job for 4 months is considered unemployed.

The third category is persons not included in the labor force . These are students, students, housewives and those who simply do not want to work for any reason. This category is considered to be the economically inactive part of the population. In total, persons belonging to the first and second categories (employed and unemployed) represent the country's labor force. The total workforce is: L=E+U

Unemployment rate is calculated as the ratio of the number of unemployed to the number of persons representing the labor force, and is expressed as a percentage.

There are several types of unemployment.

First type - frictional unemployment. It is associated with searching for and waiting for work. The fact is that it is not always easy for a person who has left his previous job or lost it to get a new job, even if it exists. The lack of necessary information, the distance of the workplace from the place of residence and many other factors lead to the fact that a person spends some time looking for a place of work that meets certain parameters. In some cases, people are forced to look for a new job. Frictional unemployment, as a rule, is voluntary and relatively short-term. Most often, frictional unemployment affects people who have good professional skills, and these people have a fairly high degree of protection from long-term unemployment.

The second type of unemployment is structural unemployment. Structural unemployment arises in connection with technological shifts in the structure of aggregate demand or aggregate supply, when the structure of demand for labor itself changes. People who for many years were considered professionals in one field or another suddenly find themselves unnecessary, because production requires new qualifications and new specialties. This was the case with locomotive drivers when the railways switched to electric and diesel traction. As a rule, structural unemployment manifests itself during periods of implementation of the results of the scientific and technological revolution in social production. Structural unemployment is longer lasting than frictional unemployment. And if frictional unemployment can be considered as voluntary unemployment, then structural unemployment is involuntary unemployment . People who have lost their jobs due to structural changes in social production, as a rule, do not have the skills necessary for a new professional activity. Obtaining qualifications that would meet the requirements of new technologies is possible only after completing a certain period of retraining and training. Therefore, the elimination of structural unemployment requires a long period, which directly correlates with the time required for retraining and training the unemployed in new, most often related professions.

The combination of the above types of unemployment (frictional and structural) forms the so-called natural rate of unemployment. This level is often called the “full employment level” or “equilibrium unemployment.” The natural rate of unemployment determines the level of potential GDP.

The combination of the words “natural” and “unemployment” suits scientists and economists studying these complex processes less and less. Therefore, in modern economic literature one can increasingly find the term NAIRU (Non-Accelerating-Inflation Rate of Unemployment), i.e. the level of unemployment , does not increase inflation. This name emphasizes the existence of a certain limit on the level of unemployment, beyond which the economy will face inflation. In other words, if the government strives to reduce unemployment that exists at the level of potential GDP (full employment of all resources), then it will inevitably face inflation.

The natural rate of unemployment, or NAIRU, is defined as the average of a country's actual unemployment rate over the previous ten years and the next ten years.

Cyclical unemployment generated by cyclical fluctuations in economic activity. The fact is that during the period when the sign of the economic movement changes from “plus to minus”, a sharp contraction of production in various industries can occur. Bankruptcies of enterprises in various fields of economic activity can become widespread, and during this period many millions of people, completely unexpectedly and suddenly, become unemployed. The problem is aggravated by the fact that in conditions of cyclical unemployment, people are not helped either by reorientation or training for some new qualification. Changing your place of residence does not always help, because a crisis can cover the entire national economy and even reach the global level. Cyclical unemployment is also dangerous because, in addition to social disasters, it also brings obvious losses in real GDP (Oken's Law).

Socio-economic consequences of unemployment:

Slowdown in economic growth due to underutilization of production capabilities;

Deprivation of part of the population of earnings, and, consequently, means of subsistence;

Increasing social tension in society.

By reducing GDP, unemployment leads to a reduction in taxes paid by legal entities and individuals to the state.

Another important negative consequence of unemployment is the obsolescence of knowledge and loss of qualifications by people who are deprived of the opportunity to work.

In addition to economic ones, unemployment has very serious social consequences. Unemployment leads to loss of confidence and self-esteem. It means inactivity and can lead to personality degradation: drunkenness, drug addiction, and the commission of illegal actions. Unemployed youth are precisely the source from which criminal circles draw their personnel. Unemployment leads to the destruction of family relationships, the breakdown of families, and, accordingly, a deterioration in the demographic situation. Stress caused by unemployment leads to deterioration of health and the occurrence of various diseases, for the treatment of which the unemployed often do not have enough money. Unemployed people are more likely to commit suicide. If unemployment exceeds the socially acceptable level (the share of the unemployed is considered to be 10-12%), a serious aggravation of social conflicts or even a social explosion is possible.

34.The relationship between inflation and unemployment. Phillips curve and its modern interpretation. The economic policy dilemma inherent in the Phillips curve.

The inverse relationship between inflation and unemployment was discovered by Alban Phillips, a professor at the London School of Economics. Having examined British statistical data for almost a hundred years (from 1861 to 1957), he came to the conclusion that the rate of growth in prices and wages began to decline if unemployment exceeded the 3% level, and vice versa. In 1958, Phillips published his observations and calculated the inverse relationship between the level of employment and the nominal wage rate. The graphical representation of this dependence is called Phillips curve, which is described as

Where w- nominal wage rate, b - a parameter reflecting the sensitivity of the level of nominal wages to changes in the unemployment rate, N* - full employment level (corresponding to the natural rate of unemployment).

Phillips' calculations were supported by the theoretical developments of the American economist R. Lipsey. Later, P. Samuelson and R. Solow replaced the growth rate of nominal wages in the Phillips model with the inflation rate π.

In this form, the Phillips model, reflecting the relationship between inflation and unemployment, is shown in Fig. The Phillips curve shows the inverse relationship between inflation and unemployment in the short term: if at inflation rates unemployment is at a level, then suppression of inflation to is accompanied by an increase in unemployment to.

The graph shows that the inflation rate π is plotted along the y-axis, and the unemployment rate U, marked on the x-axis are inversely related. In the short term, inflationary increases in prices and wages stimulate labor supply and expansion of production.

When pursuing an anti-inflationary policy, it is necessary to know the “price” of victory over inflation, that is, to determine by what percentage unemployment will increase if π is reduced by 1%. This indicator is called damage coefficient(SR) and with static expectations it is measured quite simply:

SR= 1/ b ,

Where b- change in the unemployment rate as a percentage.

Thus, an increase in inflation is the price to pay for the expansion of jobs. On the contrary, a reduction in inflation must be paid for by an increase in unemployment. However, this relationship did not withstand empirical testing in the 1970s. What is the reason that the Phillips curve began to behave "abnormally"?

The fact is that in the economies of the United States and Western Europe in the early 1970s. The dynamics of prices and production reflected the consequences of a number of crisis phenomena. The oligopolistic conspiracy of the OPEC countries to sharply increase energy prices caused an energy crisis in importing countries. Therefore, the structural crisis that had matured by that time in the United States and Western Europe was exacerbated by an external shock. Production slumps 1973-74 and the early 1980s, caused by rising costs, could not be stopped by monetary policy measures. Developed stagflation: the rise in unemployment was accompanied by an increase in inflation rates. On the graph, the situation of stagflation is depicted by a shift of the Phillips curve to the right and up from the position Ph1 to position Ph3

The figure shows a simultaneous increase in inflation π1,-> π2, and unemployment U1- > U2 i.e. stagflation, which is expressed by a shift of the Phillips curve to the right and up.

In the long term, real output and employment levels do not depend on demand inflation, but change under the influence of external factors: supply shocks (technology, price shocks) and demand shocks. For example, the introduction of new resource-saving technologies reduces unit costs and real output increases, increasing employment.

If economic development requires structural adjustment and technological innovation, and the government continues to stimulate production by inflating aggregate demand, cost-push inflation is driven inward. An unbalanced economy becomes especially sensitive to external and internal shocks.

35.Justification of government intervention in the economy. The role of the state in establishing the framework conditions for the functioning of a market economy. The problem of implementing the economic functions of the state.

The market is a well-oiled mechanism, despite its spontaneous nature, capable of solving the main economic problems facing society. However, this does not always happen and not in all cases. As you know, there are economic problems that are commonly called market fiascos (failures, insolvency). These are situations where the market (price) mechanism cannot effectively allocate resources. In such situations, it is possible and necessary to use the mechanism of state regulation. In this regard, the main areas of state activity are the following: production of public goods, minimizing negative and promoting positive externalities, suppressing asymmetric information, protecting competition, smoothing macroeconomic fluctuations, and income maintenance policies. The state plays a special role in the legal support of the functioning of the market mechanism. In all these cases, the state helps to minimize transaction costs associated with the operation of the market mechanism.

There are many reasons that can change the rate of increase in the price level. For a more detailed study of the impact of inflationary factors on the economy, we will divide them into two categories: factors lying on the side of aggregate demand and factors lying on the side of aggregate supply. On this basis, economists distinguish between two types of inflation.

Demand inflation- This is a type of inflation that is caused by reasons lying on the side of aggregate demand. Cost inflation- This is a type of inflation caused by reasons lying on the aggregate supply side. The mechanism of demand inflation is graphically depicted in Fig. 1.

Real GDP

Rice. 1 - Demand inflation

On the intermediate segment of the curve AS price growth can correspond to production growth or overtake it. On the vertical segment of the curve AS, which corresponds to aggregate supply in the long run being at the level of full employment, further expansion of aggregate demand will only cause an increase in the price level, i.e., inflation.

We see that the expansion of aggregate demand in conditions of approaching full employment and when it is achieved causes an increase in the general price level. It turns out that without inflation it is impossible to achieve an increase in GDP (in the intermediate period AS).

What leads to this kind of inflation? The fact is that effective demand is growing. Due to what? After all, the economy of any country is a closed system, and an increase in income in some sectors can, other things being equal, occur only through redistribution from other sectors, which in general will not change the size of aggregate demand. Thus, an increase in solvency can only arise due to additional emission of money carried out excessively by the state. The criterion that determines the inflation rate of money emission; is the volume of products produced in the country: if the growth rate of the money supply corresponds to the growth rate of real GDP, then such an increase in the money supply is non-inflationary. If the growth of money supply outpaces the growth of real GDP, then the circulation channels are overflowing with the money supply in excess of trade turnover.

So it turns out that the government, having a monopoly right to issue money (which in economic literature is called "seigniorage") in certain cases it can be abused. Let us consider what causes over-emission, which upsets the balance between aggregate demand and aggregate supply.

The reasons for the inflation of aggregate demand due to additional emissions are mainly related to the government's budget deficit and how to pay it off.

First, if the government believes that covering the budget deficit by borrowing from households and businesses will increase the imbalance between savings and investment, raising interest rates and reducing investment demand, then it may resort to monetization of government debt. Excessive emission and the accompanying indexation of income lead to the interweaving of inflationary expectations of the population and business, which unwinds the inflationary spiral. Moreover, any excessive expenses that exceed budget revenues, even such seemingly fair and noble ones as an increase in the size of transfer payments (pensions, benefits, subsidies, etc.), can lead to an increase in the rate of inflation.

Secondly, the expansion of the public sector, accompanied by an increase in wages, not due to an increase in labor productivity, but to attract and reward civil servants and employees of state-owned enterprises, leads to inflationary growth in aggregate demand. In addition, an increase in the share of public sector products in the economy with fixed prices against the backdrop of an increase in the nominal income of workers can also become an inflationary factor.

Thirdly, the financing of military orders and the expansion of the military-industrial complex (MIC). The products of this sector of the economy are specific and are not the object of industrial and consumer demand. The military-industrial complex itself is in demand in the capital and labor markets, as well as in the market for consumer goods and services. Pressure is created on prices in the direction of their increase, since money to pay for military orders increases the money supply, which is not supported by the mass of goods.

So, emission coverage of the budget deficit is a direct factor in demand inflation. The very reasons for the budget deficit, which consist in the inefficiency of government spending, cause (or deepen) quantitative and structural imbalances between aggregate demand and aggregate supply and become indirect factors of inflation.

The Central Bank's expansionary monetary policy may have a similar impact on aggregate demand if bonds are sold on the open market. The interest rate will decrease due to the expansion of the money supply, and investment projects are implemented after a certain time lag, during which an inflationary surge may occur.

In addition to a group of reasons related to the budget deficit and an increase in the money supply, demand-side inflation can be increased by the depreciation of the country’s domestic currency in relation to a stable foreign currency if the share of foreign currency in the monetary aggregate is high M2. When the value of the domestic currency falls, this factor acts like an additional emission and can cause demand inflation.

The mechanism of unwinding demand inflation is characterized by the fact that first the money supply increases, and then - aggregate demand.

How does demand-pull inflation affect real output? Let's look at Fig. 2.

Rice. 2. Demand inflation and real output

As a result of the growth of the money supply with a constant volume of production
expansion of aggregate demand from AD 1 to AD 2, leads to an increase
prices in the short term (from Ρ 1 before R 2). Aggregate supply will respond to price increases with short-term expansion, as shown in Fig. 2. reflected in the displacement along the curve AS 1 until it intersects with the curve AD 2 An intermediate (short-term) equilibrium is created in the economy at a higher level of prices and production.

However, in the long term, when concluding contracts, workers will not agree to already reduced real wages and, adapting to increased prices, will demand an increase in nominal wages in order to maintain the purchasing power of their earnings. An increase in nominal wages will increase entrepreneurs' costs, which will reduce aggregate supply. Curve AS 1 will shift to the left, to the original output volume Q 1. At the same time, prices will increase even more (to the level R 3).

Thus, in the long run, excessive expansion of aggregate demand will lead to a new long-term equilibrium, characterized by unchanged output at an increased price level, which will be graphically expressed in a shift in equilibrium along the long-term supply curve LRAS from point 1 to point 3.

The second type of inflation is cost inflation- occurs as a result of a reduction in aggregate supply due to an increase in production costs per unit of output. Graphically, cost-push inflation is shown in Fig. 3 using model "AD-AS".

Rice. 3. Cost-push inflation

Curve AS under the influence of rising costs per unit of production, it shifts to the left, which causes a reduction in production volume while simultaneously increasing the price level.

What causes costs to rise? First of all, let's note monopoly. 1

In an open economy, when there is a free flow of goods, services and resources across national borders, the monopoly of domestic firms can only be relative.

But no longer states, but monopoly of firms and trade unions.

Let's consider how monopoly of firms leads to an increase
production costs, causing inflation.

A significant part of products in the modern world is produced in industries with an oligopolistic market structure. All types of monopolies and oligopolies known from microeconomics have corresponding power over price. Prices are maintained due to underproduction of products compared to the competitive (i.e. socially optimal) and potential output volume, as well as due to barriers to entry into the industry, primarily based on monopoly ownership of resources. There is an overvaluation of resources in relation to their marginal productivity, as well as inflated prices for intermediate and finished products due to artificial underproduction. Spread throughout the economy, distorted price signals with each production cycle tend to set prices higher than what prices should be at a given level of technological development. So, the monopoly of firms gives rise to inertial inflated prices.

In some cases, a similar factor in cost inflation is a certain degree of power over price foreign companies, leading to variety imported inflation through price shocks. Imported inflation is understood as inflation that penetrates into the country's economy from abroad through the prices of foreign goods (usually with a high share of imports in the total supply). Thus, if the country’s economy widely uses imported resources in production (energy and technology), then their sharp rise in price will lead to an increase in costs within the country and a reduction in total production with a simultaneous rise in prices. Classic examples of cost-push inflation caused by shocks in energy prices imported from OPEC countries are the energy crisis in the United States and Western Europe in 1973-74. and the first half of the 80s.

A similar price shock effect, which can increase cost-push inflation, can also be caused by a sharp depreciation of the domestic currency against a foreign currency if the share of imports in the total supply, including resources and technology, is high. In this case, even those domestic producers whose products do not have an imported component will not be able to maintain prices. After all, all producers are simultaneously consumers, and will try to restrain the fall in their real income by increasing the output price. For example, in Russia, such behavior of producers was caused by a sharp jump in the dollar exchange rate against the ruble in August 1998.

Monopoly of trade unions manifests itself in the field of pricing in the labor market. Strong unions put pressure on employers to raise wages or reduce the supply of skilled trades, which also pushes wages up. Entrepreneurs' costs for labor services are increasing, and the high cost of production makes its expansion unprofitable. Aggregate supply begins to decline, despite the fact that aggregate demand remains at the same level, and sometimes grows.

Cost-push inflation can be caused by government contractionary fiscal and monetary policies, firstly, if there is lag in decision making and secondly, in case mutual exclusivity of economic policy goals. Thus, if the decision-making lag is prolonged, then the restraining instruments adequate to the boom phase are applied to an already changed situation, for example, a depression, which requires the government to exert a different kind of influence. As a result, untimely increases in taxes, import duties on raw materials and intermediate products, tightening of credit conditions and other restrictive measures will increase production costs and may lead to cost-push inflation.

Let us consider the case of mutually exclusive goals. Let's say the government sets the task of stimulating producers in a non-inflationary way and, at the same time, solving the problem of the budget deficit, also without causing inflation. In this case, the government will try not to worsen credit conditions (not to increase interest rates), therefore, neither refinancing nor monetization of public debt will be suitable to cover the budget deficit. What remains? If you correct the budget situation by increasing tax rates, this contradicts the first goal. However, any of the listed measures in this case will lead to inflation of costs or demand.

It should be added that not only economic (indirect), but also administrative regulation economy can give impetus to cost-push inflation. For example, frequent changes in legal norms, vagueness of legislation, complication and frequent changes in procedures for registration and reporting of companies, increased regulation of business areas, fragmentation of licenses, reduction of their validity, etc. All this increases administrative costs, in particular, transaction costs in in general, which means it can lead to an increase in the price level in the country and a reduction in legal production.

Let us consider graphically the impact of cost inflation on real production in the short and long term (Fig. 4). The initial production volume is Y 1 at price level P 1 Under pressure from trade unions, wages are rising. Entrepreneurs, faced with rising costs, reduce production volume: curve AS 1 moves left to AS 2 We see that in the short term the real output of Y decreased to Y2 and the price level increased to P 2 ,.

Rice. 4 - Cost-push inflation and real output

a) The long-run aggregate supply curve LRAS is depicted by a vertical line, since real output, which fell to Y 2 in the short run, is restored to the previous level Υ 1 in the long run

b) Under the influence of emission pumping AD, the real output volume, reduced in the short term to the level Y2 is not fully restored. Therefore, the LRAS curve deviates to the left.

Whether cost-push inflation will continue to develop depends on the government. If it dares to decline, further contraction U will entail a fall in wages and price levels. Costs and curve will be reduced AS 2 will be able to return to the level AS 1(Fig. 4 a). But, as a rule, the government chooses popular measures and, in order to prevent a recession, stimulates aggregate demand through emission pumping. It is noteworthy that informed citizens, suffering from chronic high inflation, no longer perceive the announcement of the issue as a popular measure. It is no coincidence that the government of the Russian Federation in November 1998 publicly called the emission an unpopular measure.

Graphically, the expansion of aggregate demand will be expressed in a shift AD 1 before A.D. As a result, real production will return to its previous level Υ 1, but prices will rise to the level R 3

Accordingly, subsequent labor contracts will be concluded at a higher nominal wage rate, What will again cause rising costs, a reduction in real output and a further increase in prices. This is how the inflationary spiral “wages - prices” unfolds. However, long-term production levels will not always be fully restored. Graphically (Fig. 4 b) this will be expressed by the deviation of the long-term supply curve to the left from the level of full employment to LRAS 1 which indicates a decrease in long-term production volume while prices rise.