ekono 2

Types of unemployment

Cycle/Coyuntural→ Changes according to the economic cycle

Seasonal→ Some seasonal activities have a big impact on the employment rate. For example, during summer people with jobs in the tourism sector increase.

Structural→ There is a lack of skills because of lack of access to education or formation or because there is an excessive job demand. 

Macroeconomic policies definition

Actions held by States to drive the economy towards the appointed goals by managing the main economic indicators, and also by setting a Tax policy, a Public expenditure policy and a

Price level (interest rate) for the currency of its country.

Goals of the macroeconomic policies

  1. GDP Growth

  2. Full employment rate

  3. Price stability

Macroeconomic policies

  1. Tax policy: Actions aiming to push forward the economy or aiming to cooling down the economy → Taxes and Public Expenditure

  2. Monetary policy: Action held by Central Banks aimed towards stability → Amount of money in the markets and ́interest rates

  3. Foreign policy: Regulates exchanges with other countries by setting the Exchange-rate among currencies → Exchange-rates. Imports and exports

  4. Income policy: Aims Price level stability and fights inflation. → Salaries and prices

Tax policy definition

Actions held by the Public Institutions at every level by collecting taxes and prioritizing certain public expenditure in order to implement the Government’s ́ goals.

Expansive policy: Less taxes, more public expenditure

Restrictive policy: More taxes, less public expenditure

Types of tax policies

Discretionary tax policies: 

  • Public Work programmes —> Push GDP and employment up, improve infrastructure

  • Plan for employment and workers training→ Bring people back into the labour market

  • Transfer programmes→ Help people in a less favorable situation 

  • Modifying tax rates→ Modifying families’ consumption and business investing

Automatic stabilizers: 

  • Proportional taxes→ Tax rate does not change in relation to the income level.

  • Progressive taxes—> Tax rate follows the income level.

  • Social Security→ Social benefits obtained in Exchange of the SS quotes paid by workers and companies.

  • Unemployment-benefit→ Giving a basic income to people who are unemployed

National budget definition

The national budget definition is where the tax policy tools are determined.

Public income and public expenditure

Public income: 

  • Social Security quotes: Monthly payments made by workers and companies to the Social Security in exchange for social services

  • Taxes: Direct taxes (directly linked to the income) and indirect taxes (everyone pays the same rate independently from the income level.)

  • Fees: Fees are applied when a public service is used or a public activity is demanded.

  • Others: Common transfers (the amount of money that the state allocates to pensions etc.)

Public expenditure: 

  • Ordinary expenses: Healthcare, Education, Justice, Defense etc. 

  • Investment expenses: Maintenance or improvement of national infrastructure. 

  • Transfers: Citizens in need of aid, such as, unemployed people or pensionists

  • Grants and subsidies: Money flows directed to companies in order to lead the productive sector towards innovation. 

Budget balance of the State

  • When the income is the same as the expenses, there is a balance

  • When the income is higher than the expenses, there is a surplus

  • When the income is lower than the expenses, there is a deficit

Types of deficit

  • Cyclical: Which follows the economic cycle, it increases during the downturns and decreases when the economy recovers

  • Structural: It is permanent and it is a huge cost for the economy 

Funding of the deficit

  • Create new public debt: The government issues new debt titles and gets funded, but must pay back with interest in the years to come

  • Raise taxes: It can be helpful during strong economic growth periods but can reduce the economic activity and bring other problems, such as fraud

  • Increase the amount of money in the market: It could bring inflation and price increases. 

Tax policy: Keynes and Neoliberalism

Keynes: Keynesians believe that, because prices are somewhat rigid, fluctuations in any component of spending—consumption, investment, or government expenditures—cause output to change. If government spending increases, for example, and all other spending components remain constant, then output will increase.

Neoliberalism: Neoliberalism is contemporarily used to refer to market-oriented reform policies such as “eliminating price controls, deregulating capital markets, lowering trade barriers” and reducing, especially through privatization and austerity, state influence in the economy.