Questions for Week 3 Flashcards
(21 cards)
How is the unemployment rate measured?
Unemployment rate = Number of Unemployed / Labour Force × 100%
What is the participation rate?
Participation rate = Labour Force / Working Age Population × 100%
What are the main types of unemployment, and their causes?
Frictional Unemployment: Caused by job search and matching processes.
Structural Unemployment: Caused by a mismatch between worker skills and job requirements.
Cyclical Unemployment: Caused by economic downturns that reduce demand for goods/services.
What is the natural rate of unemployment?
The natural rate of unemployment is the level when only frictional and structural unemployment are present, with cyclical unemployment at zero.
What are arguments for and against generous unemployment benefits?
For: Provides a safety net, supports consumption, and allows time for proper job search.
Against: May reduce incentives to seek employment quickly, potentially increasing unemployment duration.
How does productivity relate to employment and GDP?
Higher productivity increases GDP and can raise wages without increasing prices, potentially boosting employment if demand rises. Increased productivity may reduce employment if fewer workers are needed for the same output.
What is the difference between a classical recession and a growth recession?
Classical Recession: Defined by two consecutive quarters of negative GDP growth.
Growth Recession: Occurs when the economy grows below its potential growth rate, without negative GDP growth.
How do you calculate the marginal product and value of the marginal product for workers at Bob’s Bicycle Factory?
The marginal product is the additional output each worker adds. The value of the marginal product (VMP) is calculated by multiplying the marginal product by the price per bike, minus costs.
Example: If bikes sell for $130 with $100 costs: For the first worker: MP = 10 bikes/day, VMP = 10 × ($130 - $100) = $300.
How does an increase in bike price to $140 affect the labour demand curve for Bob’s Bicycle Factory?
The higher bike price increases each worker’s VMP, shifting the labour demand curve upward, leading Bob to potentially hire more workers if wages remain constant.
Classify each type of unemployment in these scenarios: Ted: Lost his job when the steel mill closed and lacks skills for other work.
Structural Unemployment, as his skills don’t match current job needs.
Classify each type of unemployment in these scenarios: Alice: Laid off due to a recession but expects to return when demand rises.
Cyclical Unemployment, as her layoff is related to economic downturn.
Classify each type of unemployment in these scenarios: Lance: Works seasonally for moving companies, unemployed in off-seasons.
Structural Unemployment, due to limited skills for stable employment.
Classify each type of unemployment in these scenarios: Tao: Looked for a job, turned down offers to find one matching his skills.
Frictional Unemployment, as he’s searching for the best job match.
Classify each type of unemployment in these scenarios: Karen: Found a new job in the same industry after her start-up closed.
Frictional Unemployment, since she searched for an appropriate job fit.
If a minimum wage of $50 is set but the equilibrium wage is $40, what is the effect on employment?
Employment decreases as firms demand less labour at the higher wage.
Example: If firms would hire 320 workers at $40 but only 300 at $50, unemployment rises due to the wage increase.
How does a union-mandated wage of $60 affect the labour market?
The higher wage decreases employment further as firms hire even fewer workers. Unemployment rises as the supply of workers at $60 exceeds demand at that rate.
What happens if workers receive an unemployment benefit of $50 instead of working for less?
At $50, workers are indifferent between working or receiving benefits, leading to a reduction in the labour supply below that wage. Employment stabilizes at a level where labour demand meets this effective minimum wage.
What are the key characteristics of Australia’s business cycles?
Eight recessions since 1959, with average contraction lasting 3 quarters and expansion lasting 15 quarters. Causes include the Covid pandemic, monetary contractions, supply shocks, and industry-specific impacts (e.g., Dutch disease).
How many quarters did the longest Australian recession last?
The 1981-83 recession lasted 7 quarters, making it the longest contraction before Covid-19.
What happens to wages in the sweater and dress industries when trade changes prices?
If sweater prices increase from $40 to $50 due to trade, sweater workers’ VMP and wages rise. If dress prices fall to $50, dress workers’ VMP and wages drop. Workers in the sweater industry benefit, while dress workers lose out.
How does free movement between industries affect wage equilibrium in the long run?
Workers shift to the industry offering higher wages until wages equalize between the sweater and dress industries. This movement continues until both industries offer the same wage, reflecting the equilibrium value of marginal product.
