Unemployment

Question 1

What does NAIRU stand for?

Answer 1

Non-Accelerating Inflation Rate of Unemployment

Question 2

What is the relationship between unemployment and inflation according to the Phillips curve?

Answer 2

Low unemployment leads to increased wages due to labor scarcity, resulting in higher inflation.

Question 3

What is the current NAIRU according to the treasury and RBA?

Answer 3

Treasury says 4.2% and RBA says 4-5%.

Question 4

What does NAIRU indicate about unemployment?

Answer 4

It refers to the level of unemployment at which there is no cyclical unemployment, meaning the economy is at full employment.

Question 5

Why will inflation accelerate if unemployment falls below NAIRU?

Answer 5

Low unemployment increases cost inflation due to upward pressure on wages, leading to higher inflation expectations.

Question 6

What should the government do when unemployment is above NAIRU?

Answer 6

Use expansionary macroeconomic policies to reduce cyclical unemployment.

Question 7

What can be done when unemployment is at or below NAIRU?

Answer 7

Microeconomic reforms can be used to address structural and frictional unemployment.

Question 8

What are some examples of microeconomic reforms?

Answer 8

Legislative retraining and welfare programs to aid those structurally unemployed.