Week 9 key definitions

Question 1

Wage setting curve

Answer 1

The curve that gives the real wage necessary at each level of economy-wide employment to provide workers with incentives to work hard and well.

Question 2

Price setting curve

Answer 2

The curve that gives the real wage paid when firms choose their profit-maximizing price.

Question 3

Labour force

Answer 3

he number of people in the population of working age who are, or wish to be, in work outside the household. They are either employed (including self-employed) or unemployed.

Question 4

Inactive population

Answer 4

People in the population of working age who are neither employed nor actively looking for paid work. Those working in the home raising children, for example, are not considered as being in the labour force and therefore are classified this way.

Question 5

Participation rate

Answer 5

The ratio of the number of people in the labour force to the population of working age.

Question 6

Employment rate

Answer 6

The ratio of the number of employed to the population of working age.

Question 7

Unemployment rate

Answer 7

The ratio of the number of the unemployed to the total labour force.

(Note that the employment rate and unemployment rate do not sum to 100%, as they have different denominators.)

Question 8

Involuntary unemployment

Answer 8

The state of being out of work, but pre­ferring to have a job at the wages and working conditions that other­wise identical employed workers have.

Question 9

Equilibrium unemployment

Answer 9

The number of people seeking work but without jobs, which is determined by the intersection of the wage-setting and price-setting curves. This is the Nash equilibrium of the labour market where neither employers nor workers could do better by changing their behaviour.

Question 10

Cyclical unemployment

Answer 10

The increase in unemployment above equilibrium unemployment caused by a fall in aggregate demand associated with the business cycle.

Question 11

Nominal wage

Answer 11

The actual amount received in payment for work, in a particular currency.

Question 12

Real wage

Answer 12

The nominal wage, adjusted to take account of changes in prices between different time periods. It measures the amount of goods and services the worker can buy.

Question 13

Labour productivity

Answer 13

Total output divided by the number of hours or some other measure of labour input.

Question 14

Monetary policy

Answer 14

Central bank (or government) actions aimed at influencing economic activity through changing interest rates or the prices of financial assets.

Question 15

Fiscal policy

Answer 15

Changes in taxes or government spending in order to stabilize the economy.

Question 16

Trade union

Answer 16

An organization consisting predominantly of employees, the principal activities of which include the negotiation of rates of pay and conditions of employment for its members.