Unemployment is a measure of the number of people who are willing, able and actively seeking work at the going wage rate but cannot find it. Typically it is measured by the Labour Force Survey which seeks to establish whether people have been looking for work recently and whether they can start work soon. Sometimes the government uses the Claimant Count, which simply measures the number of people claiming unemployment benefit. This produces a much lower number which could mislead people into thinking that a far greater proportion of the population are working, however it does reflect the number of unemployed people that the tax payer is supporting.
There are a number of different types of unemployment such as frictional - those in between jobs, cyclical - because of a lack of aggregate demand due to the economic cycle and structural - due to a skills mismatch when workers do not have the skills required by an ever changing economy. Each of these types has a different solution. Frictional unemployment is best reduced by improving information on job vacancies, cyclical by improving aggregate demand and structural by offering retraining programs.
The key to most exam questions on inflation is to establish and explain which cause(s) of unemployment are relevant to the specific context of the question and then explain which problems and solutions are most relevant and why. The sources will give you hits and clues so use them wisely.
The revision video below will give you a brief overview of the unemployment topic and cover all the major concepts you need for AS and A2 Economics exams such as measurements, causes, problems and solutions.
Inflation is the sustained rise in the general price level and is measured by calculating the percentage change in a price index. The main measures you will come across are the CPI (consumer price index) and the RPI (retail price index). They are calculated in different ways and so will give different results but both take the same approach - calculating the change in price of a weighted basket of goods.
Cost-push inflation is caused by the increase in firms' costs leading to increasing prices. It can create a wage-price spiral where workers demand increased wages, which in turn increases firms' costs, increasing prices, resulting in further wage demands. Demand-pull inflation on the other hand is caused by demand for goods outstripping supply, leading to shortages and price rises.
Each of these types of inflation can cause problems such as menu and shoe leather costs - the cost of changing price prices and searching out the best prices each time prices change. Inflation also tends to redistribute wealth from savers to borrowers as it erodes the value of debts and savings. This is particularly problematic if inflation is high and interest rates are low. Typically these costs are small if inflation is low and predictable but they can become significant with high or erratic inflation.
The solutions to inflation depend on the type of inflation. Reducing aggregate demand, for example by increasing interest rates, will help to solve demand-pull inflation but will have a limited impact on cost-push inflation, which is better tackled by policies to increase competition amongst firms or reducing trade union power which will help to prevent a wage-price spiral becoming established.
The revision video below will give you a brief overview of the inflation topic and cover all the major concepts you need for AS and A2 Economics exams
Epistemology is one of the central areas of Philosophy. It attempts to deal with what we can know, and how we can know it. We all feel that we have an instinctive understanding of what it means to know something. Sooner or later it will be necessary to consider the exact nature of knowledge more closely but to begin let us assume that to ‘know’ something means more or less what you feel it means.
Some things we experience directly – snow is cold. I know this because I have touched it. There are many things that we do not know in the same way, either because we have not yet experienced them ourselves or because they are not the sorts of things we can experience, for instance I know that the Sun is just under 150 million km from the earth. I will never travel that distance or experience it in any way but I can know it. In order to know these sorts of things some form of reasoning must be used.
Snow is made of frozen water, frozen water is cold, therefore snow is cold. This is an example of deductive reasoning that would allow me to know snow is cold even if I have never experienced it. It is the sort of reasoning that must give us the right answer as long as the assumptions (premises) are correct. If snow really is made of frozen water and frozen water really is cold then snow must be cold. I could say this even if I know nothing more about snow and have never experienced it.
Inductive reasoning is based much more on experience for example every time my wife watches the film 'Philadelphia' she cries. If we are watching Philadelphia again tonight I might say I know she will cry tonight. This knowledge relies on some sort of experience and is not quite as secure and certain as deductive reasoning, for example it may be that tonight my wife is not quite as saddened by the film as she has been in the past and does not cry.
You may think that inductive reasoning is not quite as good as deductive reasoning and in many ways you are right but it wouldn't be possible to know whether my wife will cry tonight with deductive reasoning. This sort of reasoning can’t really tell us anything new that is not contained in the premises, it simply rearranges them to help us realise something we may not have spotted before. To go beyond this we must use inductive reasoning.
There are two main ideas about where our knowledge comes from, each related to the types of reasoning mentioned before.
Rationalists such as Descartes, Leibniz and Kant argue that we can know things purely by using reason. We don’t need experience of the world outside us to have knowledge. For example as long as I have the concept of numbers then I don’t need any experience to know that 2+2=4. The most famous expression of rationalism is probably the quotation from Descartes – “I think, therefore I am”. In trying to ascertain what he could really know for certain, Descartes began with the starting point that, since he was thinking, he must exist. While it may seem obvious to you that you exist, it is rather harder to prove it but through simple (at least in hindsight) logic Descartes was able to prove to himself that he did. Rationalism is closely related to the deductive reasoning you have already read about. Assuming we have the basic tools of logic, maths etc. (which they claim we are all born with) rationalists argue that we do not need to have experience of the world around us to know things – we can deduce them from first principles.
Empiricists dispute that we are born with any innate knowledge or tools. Philosophers such as Locke and Hume would argue that knowledge comes primarily from experiencing the world around us and making inductive arguments from there. The most famous work on the subject is probably Locke’s “An essay concerning human understanding” in which he argues that there is no need to assume certain inbuilt tools as logic and maths as all our knowledge can be explained more simply by learning from experience. This allows much more knowledge than rationalism but does make certain assumptions, for example that we can experience the ‘true’ world around us, an argument we will consider later.
Now we have some background it is time to consider what we really mean when we claim to know something. It is a surprisingly slippery concept to nail down but traditionally philosophers have taken the so called ‘Tripartite’ view of knowledge. It has been expressed in many ways and dates back to Plato but the rough gist is that I can claim to know something if all of the following are true:
It is often summarised as: knowledge is a justified, true believe. This would seem to be a fairly safe working definition. Obviously if I don’t believe the earth is round I can’t claim to know it is. Equally I may believe it to be round but, without justification I am simply wishing. Even this definition has its problems though. What if, for example, my reasoning was wrong. What if I believed the earth was round only because I had seen a photoshopped image of it. I would be right but for the wrong reasons. Could I really then say I knew it. There are many adaptations of this definition that seek to solve the problem but each has its own issues.
One attempt to get away from the problem all together is to take a pragmatic view. A pragmatist (in the philosophical sense) argues that knowledge and understanding come about not by reasoning from basic principles but by working assumptions and experience. To go back to our snow example, we may not be able to prove exactly how I know or what it means to know that snow is cold but the fact that if I assume it is cold I use it to cool my drink and that works allows me to say that I know it is cold.
All we have said so far, except maybe the most basic parts of rationalism, assumes that there is a world outside that we can experience directly and know something about. Scepticism questions even this basic assumption. It suggests that it might just be possible there is no such thing as a ‘real’ world, it questions our very existence (and everything else along the way) and accepts only what can be certainly proved. Bertrand Russell points out that while it is hard to prove beyond doubt that we do not all exist in some Matrix style fabrication there is not the slightest reason to believe that we do. For those of us at risk of being driven mad by doubting even our own existence this is us useful fact to hold on to, however it is undeniable that our minds do not experience the world outside directly and so it is hard to say we know exactly what it is like.
Take the example of a table that Russell uses in his Problems of Philosophy. You believe the table in your kitchen is rectangular but from almost every angle it appears not to be – perspective makes it appear as a trapezoid looking along its length, from a corner it may look like a diamond etc. The colour is no less problematic. You think it is brown wood but place it in the sunlight it will look white in places, or blue, reflecting the sky. Touch is no less problematic. You hit the table and think it hard, solid, but an electron microscope tells us that the table (and your hand for that matter) is mostly empty space between tightly packed nuclei of atoms and fast moving electrons. All this is to say that your mind interprets what the ‘real’ object is like but how do we know whether we have the ‘correct’ interpretation? We have all seen optical illusions that fool our mind. What makes us sure that there is a ‘real’ world at all, rather than a collection of ‘sense data’ generated some other way?
If you have made it all the way to the end you have done well – it is not easy stuff the first time you come across it. The intention of these articles is not to teach you an exam syllabus or prepare you for a test, it is to give you an introduction to some of the key areas of philosophy, especially if you are considering the subject as part of a university course. Now you have a little understanding of the key areas such as rationalism and empiricism, inductive and deductive reasoning and scepticism, you are better equipped as you read books and articles to understand the basic terminology and what some of the arguments are driving at. If you are preparing for an interview or personal statement you might want to try reading Philosophy – Key Themes by Julian Baggini or, slightly less accessible but free and well worth the effort, Problems of Philosophy by Bertrand Russell. You might also want to have a look at our "Guide to Good Thinking" for a non-technical approach to knowledge or our “Writing a Personal Statement for UCAS” blog post for thoughts on statements and interviews.
The traditional view of a philosopher is probably an old man, with a beard, sitting in a wing back chair, overcomplicating the apparently simple. It will not surprise you to hear that this wide of the mark. What is true however, is that many things that appear simple may not be as straightforward as they appear. Straightforward statements that we take for granted in everyday speech have a whole host of assumptions that Philosophy attempts to unpick. “What do you know about chess?” may seem like a straightforward question but before answering it a Philosopher interested in Epistemology (the study of knowledge) would first want to ask “how do I know?”, “what can I know?” and “what is knowledge?” all before he even starts on chess. If all of that sounds very abstract to you then you might be right - Philosophy is a very broad subject and some areas are more grounded in the real world than others. Areas of philosophy include Epistemology (mentioned above), Metaphysics (looking at the ultimate nature of reality), Philosophy of Religion, Moral Philosophy, Political Philosophy and many more.
The key to being a good philosopher is to question but it is also not to question too much – if you are considering freedom and the nature of human rights, it is probably not the time to consider whether the world we see around us really exists. That is a legitimate question but to make headway on freedom you will need to temporarily simply assume the existence of other cognisant beings. There are no hard and fast rules as to where to stop but experience will show you what works and what doesn't.
In a 2005 Gallup poll, 71% of teenagers said their political views were ‘about the same´ as their parents. 21% said more liberal while only 7% considered themselves more conservative. It would seem that many people vote the way of their parents. There are lots of possible explanations for this but the one favoured by many commentators is party identification. This is where rather than supporting a set of policies and voting for whichever party most closely matches these views, voters habitually, or perhaps ideologically, vote for the same party regardless of their policies. The factors that influence the party with which people identify has been the focus of lots of research. Suggestions rang from social class and parents’ voting habits to age and geographic location. For example, proponents of the idea would suggest that if you grew up in a mining village outside Newcastle in a working class family then the influence of your parents’ views, your associations of the Tories with pit closures and your social-economic background all make you highly unlikely to vote Conservative, even if their policies now represent your views. If you want to read some of the research then you can find a paper on the subject here. (A-Level students you might find it a little hard going but remember you don’t need to understand every line to understand what the paper is suggesting.)
Votesforpolicies.org.uk is a website that gives you the chance to select your preferred set of policies from those on offer and see who that would lead you to vote for. It isn’t perfect – it assumes you place equal weight on all the policy areas you have selected and it assumes you think each party is equally likely to deliver on their promises. It's worst failing is perhaps that it presents policies independently from how they will be financed so there may be a long list of spending promises but we are not told that to fund these, taxes may rise or damaging cuts implemented else where. However if you keep these problems in mind it is still worth a look if you think you are likely to vote based on party identification rather than policy agreement.
There are many different measures of inflation but all the main ones work in the same way. They attempt to measure changes in the cost of living for the average consumer using a weighted basket of goods.
A notional basket of goods is created and the cost of the goods and services in the basked calculated. The cost of those products s then calculated again at regular intervals and compared with the first price. The goods in the basket are weighted according to the proportion of income consumers spend on those items. This is important as it means a change in the price of petrol is taken into account more than a change in the price of matches, which are a very small part of most people’s budget. Different measures of inflation include different items and different weightings. All indexes are updated regularly to ensure the goods they contain are still bought and used by households
The price of this basket of goods is expressed as an index number, which has advantages and disadvantages:
But it
An index picks a base year and sets the price of the basket of goods in that year equal to 100. Every subsequent year is then compared to this base year. To calculate an index number:
There are no units for an index number.
For example
|
Year |
Price |
|
2014 |
£1,300 |
|
2015 |
£1,400 |
|
2016 |
£1,450 |
If the base year is 2014 then the index number for this year will be 100.
The index number for 2015 will be
Have a go at the index for 2016. The answer is at the bottom of the page.
To work out the inflation rate you need to calculate a percentage change. This is easy if you are comparing to the base year – just take off 100, but if you are comparing any two other years you need to use this formula
So to work out the inflation in 2014:
Have a go at inflation in 2015.
2016 index number is
Which gives an inflation rate of
Economic growth is an increase in the productive capacity of an economy. It is measured by comparing the GDP (total value of goods and services produced in an economy) in one year to GDP in the next. For the A Level course you need to understand what economic growth is, how to calculate it, what causes it, how to draw it and its costs and benefits. This video will give you an overview of the growth topic and what you should know.
The economic cycle refers to the regular pattern of growth and then slowdown or recession seen in most market economies.
There are 4 phases to the economic cycle:
Recession – two consecutive quarters of negative economic growth
Slump – the economy has stopped contracting but has not yet started to grow
Recovery – growth has returned and employment is starting to rise again
Boom – strong economic growth associated with very low unemployment and rising inflation.
There are a number of possible causes of these economic cycles:
Inventory Cycles – When firms have excess stocks they may wish to de-stock, cutting back on output and so workers. This will reduce demand as incomes have fallen, further reducing the need for output. Equally when firms expect rising demand they will want to increase stocks and so will need a large increase in output.
Outside shocks – unexpected events altering either aggregate demand (demand side shocks) or aggregate supply (supply side shocks) can cause an increase or decrease in output.
Political Cycles – recessions and slowdowns have often closely followed elections. This suggests that governments may be creating unsustainable growth before an election in order to remain in power but that this leads to tightening of monetary and fiscal policy after the election. The long period of growth after independent Bank of England gained responsibility for monetary policy lends weight to this suggestion.
Accelerators and Multipliers – an injection into the circular flow leads to a multiplier effect, creating an increase in growth. A growth in national income will also lead to an accelerator effect, increasing investment spending. This also works in reverse if there is a withdrawal from the circular flow. This would create a sustained upturn followed by a sustained recession.
Generally economic growth is considered a good thing and but it is not enough simply to assume it is good in its own right. We must consider the benefits it creates. These are different in different circumstances. It usually results in:
When we talk about economic growth we are talking about an increase in the real value of economic output which, without thinking we tend to use as a proxy for quality of life or happiness. They are linked but they are not the same thing as growth can have downsides such as:
Generally long run, sustainable growth caused by an increase in productive capacity is likely to bring more of the benefits and be affected by fewer of the costs.
Some economists such as Simon Kuznets suggest that inequality is worst in partially developed countries. In poorer societies the majority of the population have very low wealth and incomes, meaning there is little inequality. As economic development and growth occur, wealth is concentrated in the hands of business owners and those with access to capital. Finally, as higher levels of average income are reached individuals become more concerned about the level of inequality and have the disposable income to devote to charities and welfare systems, thus reducing inequality.
A similar argument can be made for environmental damage where newly industrialised countries tend to grow rapidly with ‘dirty’ technologies but as development continues people become more concerned about environmental damage and have the resources to devote to reducing environmental impacts.
Economists talk about short run and long run growth. Short run growth is just an increase in output (like above). Long run growth is an increase in capacity. Think about it like a school. In the short run a school can grow numbers by increasing the number of desks in the classroom but this creates problems and can’t keep going forever. Eventually they must increase the capacity of the school by building new classrooms, then they can take more students than it was possible to take before.
Increasing aggregate demand leads to an increase in output. This increase in AD could be caused by anything that impacts one of the components of AD (consumption spending, investment spending, government spending or an improvement in the balance of trade).
e.g:
In the short run it is possible to grow by increasing demand and using more of the capacity the economy already has but unless there is lots of spare capacity in an economy – high unemployment and lots of firms underusing their machinery then there will be inflation. The closer an economy gets to full capacity the more inflation there will be when AD rises and the less increase in output
Long run growth is caused by increasing the productive capacity of an economy. This is show by shifting the PPF or long run aggregate supply curve right. It is more desirable than short run growth as it is possible to continually grow this way without inflation.
Long run growth can be achieved by improving or increasing on of the factors of production. For example:
It is more sustainable than short run growth and does not cause inflation but most supply-side policies are very slow to take effect and the spending required may create even more inflation in the short run.
