topic 4 Flashcards
(24 cards)
What is the time frame for the short run in the context of the labour market?
18-24 months
This period is primarily influenced by demand-side factors.
What is the time frame for the medium run in the context of the labour market?
2-5 years
In this period, supply-side factors become more important.
What does monetary policy affect in the labour market?
Shifts the LM curve
What does fiscal policy affect in the labour market?
Shifts the IS curve
What does ‘Z’ represent in the context of the labour market?
Labour bargaining power
What does ‘M’ represent in the context of the labour market?
Competition between firms (Mark Up)
What is the formula for the employment rate (N/L)?
N/L = employment rate
What is the formula for the unemployment rate (U/L)?
U/L = unemployment rate
How is wage determination expressed mathematically?
W = P^e F(u,z)
What is the relationship between unemployment rate and wages?
Negatively related - as unemployment falls, higher wages needed
What is the relationship between bargaining power (Z) and wages?
Positively related - as Z rises, higher wages
What is the production function under the assumption that labour is the only cost?
Y = N
In perfect competition, what is the cost of producing one additional unit of output?
The wage paid to workers
What is the price setting curve formula?
P = (1+m)W
What happens to the mark-up (m) as market structure tends towards monopoly?
m becomes larger
What is the neoclassical ‘natural rate’ of unemployment formula?
F(u,z) = 1/1+m
What happens to real wages if the mark-up (m) rises?
Real wages decrease as prices are higher while wages haven’t risen
What effect does a higher mark-up have on the natural rate of unemployment?
It rises because the intersection with PS is further along the curve
What occurs when monopoly power increases?
Reduction in wages and a fall in labour bargaining power (z)
What is a limitation of the model discussing the natural rate of unemployment?
Focuses solely on supply-side factors
What was the finding of A.W. Phillips regarding wage inflation and unemployment?
Negative relationship between wage inflation and unemployment
When did the Phillips curve relationship break down?
In the 1970s
What equations are used to construct the Phillips curve?
- Price setting: P = (1+m)W
- Wage setting: W = P^eF(u,z)
What does the Phillips curve establish a relationship between?
Inflation and unemployment, including inflation expectations
