CHAPTER 10 - CHAPTER 10 The Aggregate Performance of the...

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CHAPTER 10 The Aggregate Performance of the Economy
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Aggregate Performance of the Economy Now: look at overall performance of an economy Growth Unemployment Inflation,... For decision-making information necessary (about the state of the economy) importance of economic indicators
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Measuring Unemployment Why is unemployment a problem?
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Measuring Unemployment Employment is linked to... The ability to earn a living, but also... Part of personal identity/self-esteem Measure of UE: unemployment rate (percentage of the civilian labor force that is unemployed)
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Measuring Unemployment How is the unemployment rate calculated? Bureau of Labor Statistics monthly survey of 60,000 households Two numbers are needed No. of employed: everyone who worked for pay and everyone who worked more than 15 hours in a family business w/o pay during survey week No. of unemployed IF actively seeking employment Sum of both numbers = civilian labor force
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Measuring Unemployment
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Measuring Unemployment Unemployment Rate = total no. of unemployed persons/ total no. of persons in the civilian labor force February 2008: civilian labor force: 153.37 million Unemployed: 7.38 million Unemployment rate: 4.8 percent
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Measuring Unemployment US Unemployment Rate (seasonally adjusted, in percent) Source: Bureau of Labor Statistics
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Measuring Unemployment Different Types of Unemployment Frictional UE Cyclical UE Structural UE
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Measuring Unemployment Frictional Unemployment Even if there are plenty of jobs available, some people will be unemployed simply because they are changing jobs, are looking for a new job,... Frictional unemployment (as it involves a „friction“ in the labor market adjustment) - certain amount unavoidable (even desirable)
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Measuring Unemployment Cyclical Unemployment Every economy experiences ups and downs, i.e. periods of increasing output (expansions) and periods of declining output (recession) business cycle During recessions decrease in demand firms can‘t sell as much as they did before have to lay off workers Certain economic theories argue it is possible to reduce cyclical UE by „smoothing“ business cycles
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Measuring Unemployment US Unemployment Rate Source: BLS
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Measuring Unemployment Structural Unemployment Structural changes in the economy certain
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