Economic Concepts and Differences Between Them

Subject: Economics
Pages: 2
Words: 386
Reading time:
2 min

Unemployment rate and the participation rate

One of the major differences between the unemployment rate and participation rate is in their relation to age. Research shows that the unemployment rate is higher among young people who have recently qualified to join the labor market. The unemployment rate among men is stable below the age of 50, after which it tends to increase up to the early 60s. For women, this is different since their unemployment rate decreases gradually even beyond the age of 50. The participation rate, on the other hand, is lower among the young population but tends to increase with age. Among men, this rate decreases gradually with time until the age of 50, when the rate of decline increases. This is different in women since their participation rate seems to decrease between the age of 25 and 35 since this is the childbearing age. From there, it increases up to the age of 50 then follows the same trend as in men.

The expenditure multiplier and the money multiplier

The expenditure multiplier is defined in terms of output, while the money multiplier is defined in monetary terms. Again, the expenditure multiplier is a function of consumption, investment, government purchases, and the gross domestic product, while the money multiplier is a function of checkable deposits, required reserve deposits, and the currency.

The balance of payments deficit and the budget deficit

The balance of payment deficit reduces the supply of currency in a country leading to adverse economic effects such as unemployment, the balance of trade deficit, and inflation since it involves greater currency outflow compared to the inflow. The budget deficit, on the other hand, increases the level of government debts hence directing a large portion of the government’s expenditure toward financing this debt. This has adverse effects on the entire economy since it leads to reduced levels of investment.

The terms of trade and the exchange rate

The main difference between terms of trade and exchange rate is that terms of trade are used in reference to the importation and exportation of goods and services, while exchange rate deals with the exchange of currency between different economies.