Unemployment and Phillips Curve

Question 1

What are the 3 categories of Unemployment?

Answer 1

Frictional, Cyclical, Structural

Question 2

Frictional Unemployment

Answer 2

“between jobs” short-term unemployment, matching workers to jobs. E.G. workers who have quit, been fired, laid off, just entered work force

Question 3

Structural Unemployment

Answer 3

Caused by changes in structure of demand for labor. E.G. certain skills become obsolete or geographic distribution of jobs changes.

Question 4

Cyclical Unemployment (GDP)

Answer 4

Caused by extra unemployment that occurs during the recession phase of the business cycle. Very costly economically

Question 5

Natural Rate of Unemployment

Answer 5

Frictional + Structural Unemployment. also known as full employment.

Question 6

Okun’s Law

Answer 6

Ratio of 1% to 2.5%.

Question 7

Labor Force

Answer 7

Employed + Unemployed

Question 8

Unemployment Rate

Answer 8

Unemployed / Labor Force

Question 9

Impediments to Full Employment

Answer 9

1. minimum wage 2. labor unions 3. unemployment insurance 4. other government regulations

Question 10

Phillips Curve

Answer 10

As Unemployment increases, inflation decreases. As unemployment decreases, inflation increases.

Question 11

Bargaining Power

Answer 11

1. at low unemployment labor has high bargaining power, pushes wages up! 2. at high unemployment firms have bargaining power, pushes wages down

Question 12

Movement along Phillips Curve..

Answer 12

a change in inflation or unemployment

Question 13

Phillips Curve Shifters

Answer 13

Increase in labor force (shift right), discouraged workers reenter workforce (shift right), Expected increase in inflation (shift right)