WEEK 10

Question 1

Relationship between unemployment and

1. Recession
2. Expansion

Answer 1

Always rises

Usually falls (but not always)

Question 2

Unemployment rate

Answer 2

Percentage of total number of people in the labor force who are unemployed

Question 3

Labor force

Answer 3

Number of all workers - employed and unemployed

Question 4

Labor force participation rate

Answer 4

Number of all adults (people over 16) in the labor force

Question 5

Issues with the unemployment rate

Answer 5

Good indicator of how easy it is to find a job BUT Can overstate the true level of unemployment (even if the labor market is healthy, still takes time to find a job and in the mean time is considered unemployed) Doesn’t measure the quality of jobs or how well people are matched to their jobs Can understate the the true level of unemployment because some people might give up on looking for a job because none are available and therefore leave labor force)

Question 6

Discouraged workers

Answer 6

Non-working people who have given up looking for work Not considered unemployed Deeper the recession, the more discouraged workers

Question 7

Marginally attached workers

Answer 7

Those who were available and actively looked for work recently but not currently looking (in past 12 months but not in the last 4 weeks)

Question 8

Unemployed workers

Answer 8

People who work part time jobs because cannot find full-time jobs

Question 9

Jobless recovery

Answer 9

Period in which real GDP growth rate is positive but unemployment rate still rising

Question 10

What are the three types of unemployment?

Answer 10

Frictional, structural, cyclical

Question 11

What happens in a healthy year job-wise?

Answer 11

Workers move in and out of employment and unemployment each month

Question 12

Frictional unemployment

Answer 12

Unemployment due to time workers spend in job search Created by a scarcity of information Matching people to jobs takes time

Question 13

Structural unemployment

Answer 13

More people are seeking jobs in a particular labor market than there are jobs available at the current wage rate even when the economy is at the peak of its business cycle

Question 14

Causes of structural unemployment

Answer 14

Labor unions Efficiency wages Side effects of government policies Mismatches between employees and employers

Question 15

Efficiency wages

Answer 15

Wages that employers set above equilibrium rate as an incentive for better employee performance

Question 16

Labor union

Answer 16

Associate of workers that bargain collectively with employers over wages, benefits, working conditions, etc.

Question 17

Cyclical unemployment

Answer 17

Unemployment correlated with business cycle Deviation from natural rate

Question 18

Why is lower GDP growth associated with higher unemployment?

Answer 18

1. When GDP falls, firms lay off workers 2. Idle labor and capital leads to economic growth not being maximized which decreases the ability of an economy to create more jobs

Question 19

Natural unemployment

Answer 19

Frictional + structural always present

Question 20

Actual unemployment

Answer 20

Natural and cyclical unemployment

Question 21

Why do we need natural employment estimates?

Answer 21

To make forecasts and conduct policy analyses

Question 22

What causes natural unemployment to change?

Answer 22

Changes in characteristics of LF/demographics Example: 1. Changes in labor market institutions: unions, temp agencies, new tech 2. Changes in government policy: job training programs

Question 23

Shoe leather costs

Answer 23

Increased costs of transactions caused by inflation Because cash quickly loses value during high inflation, people waste time trying to spend it as fast as possible

Question 24

Menu cost

Answer 24

Real cost of changing a listed price

Question 25

Unit-of-account costs

Answer 25

Costs arising from the way inflation makes money a less reliable unit of measurement (e.g. during high inflation)

Question 26

Interest rate

Answer 26

Price that a lender charges for the use of savings for a year

Question 27

Nominal interest rate

Answer 27

Interest rate expressed in dollar terms

Question 28

Real interest rate

Answer 28

Nominal IR - inflation rate

Question 29

Disinflation

Answer 29

Process of bringing inflation rate down, usually increases unemployment

Question 30

Labor force participation rate equation

Answer 30

Question 31

Unemployment rate equation

Answer 31

Question 32

Traditional structural unemployment minimum wage argument

Answer 32

• Minimum wage creates low-skilled unemployment
• Higher the wage, more structural unemployment

Question 33

Real wage equation

Answer 33

Question 34

real income equation

Answer 34

Question 35

inflation rate

Answer 35

Question 36

graph showing the natural rate of unemployment

Answer 36