Lectures 10-13

Question 1

Supply shocks cause price level and output to move in the ____ direction

Answer 1

Opposite

Question 2

Rightward shift in AS can be caused by

Answer 2

• Rise in productivity
• Cut in unemployment benefit

Question 3

In terms of LRAS, Y*=

Answer 3

Y*=F(φ,μ,z)

Question 4

What would need to happen to μ, φ and z for LRAS to shift right

Answer 4

φ rises
μ falls
z falls

Question 5

If P>Pe

Answer 5

Pe will rise

Question 6

P<Pe

Answer 6

Pe will fall

Question 7

Prices are slower to ___ than to ___

Answer 7

fall, rise

Question 8

Permanent rise in GDP can be caused by

Answer 8

Shifting SRAS and LRAS via φ rising, μ falling, z fallingM

Question 9

Main component of GDP that causes Business cycles is

Answer 9

Changes in Investment

Question 10

Accelerator Model

Answer 10

Links Investment with change in GDP

Question 11

Why might business expansion be slow

Answer 11

Capacity constraints, plant equipment and other resources

Question 12

Two Measures of Unemployment

Answer 12

1. Claimant Count
2. ILO Unemployment

Question 13

Claimant Count

Answer 13

All people claiming unemployment benefits, measured by:
(Number of claimants)/(Number employed in FT or PT work+number of claimants) x100

Question 14

Problems with Claimant Count

Answer 14

• Change in Benefits system also causes change in number of claimants
• If not claiming benefits, not counted
• Counts people with two jobs twice

Question 15

ILO Unemployment Classes

Answer 15

1. ILO Employed - At least 1 hour of work per week, on job training or unpaid work in family business
2. Unemployed - Out of work who haven’t tried find work for 4 weeks or starting job in next 2 weeks
3. Economically Inactive - everyone else

Question 16

Problem with ILO Unemployment

Answer 16

Employed includes both those work just 1 hour to those who work many hours in same group

Question 17

3 Main Concepts in ILO measure

Answer 17

1. Unemployment rate
2. Labour force
3. Participation rate

Question 18

Participation rate

Answer 18

Percentage of working age population in labour force

Question 19

Labour Force

Answer 19

Total employed and unemployed in economy

Question 20

Unemployment rate

Answer 20

No. of unemployed/total labour force

Question 21

Types of Unemployment

Answer 21

1. Frictional
2. Structural
3. Equilibrium
4. Cyclical
5. Involuntary

Question 22

Frictional Unemployment

Answer 22

Movement between work

Question 23

Structural Unemployment

Answer 23

Long-term due to mismatch of skills and vacancies even when economy at normal production rate

Question 24

Equilibrium Unemployment

Answer 24

Friction+Structural (full employment, economy at potential level)

Question 25

Cyclical Unemployment

Answer 25

Extra unemployment during recessions

Question 26

Involuntary Unemployment

Answer 26

Idleness likely caused by redundancy

Question 27

Causes of Cyclical Unemployment

Answer 27

- Presence of Negative Output Gap - Wages are sticky for there to be demand deficient unemployment

Question 28

NAIRU

Answer 28

Non-Accelerating Inflation rate of Unemployment - theoretical Unemployment rate where inflation is stable or constant (therefore doesnt accelerate or decelerate)

Question 29

Adam Smith 3 Prerequisites for economic growth

Answer 29

1. Security of Property necessary for supply of effort and capital 2. Control of primogeniture - landed gentry to keep large estates 3. Infrastructure to be provided by state

Question 30

Division of Labour Increases output in 3 ways

Answer 30

1. Dexterity of workforce improves with practice 2. Time saved moving between tasks 3. Machinery can be employed