Chapter 14 review_StudyGuide

Chapter 14 review_StudyGuide - Chapter 14 review The Labor...

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Chapter 14 review The Labor Market: Basic Concepts LF = E +U Unemployment rate = U/LF To be unemployed a person must be out of a job and actively lookin for work A person who stops looking for work is considered out of the labor force When economy contracts – number of people of nemployed and unemployment rate rise Employment tends to fall when aggregate output falls and rise when aggregate output rises BUT decline in demand or labor does not necessarily mean that unemployment will rise…initially create an excess supply of labor which will cause the wge rate to fall unitl labor supplied equals labor demanded everyone who wants job will have one If labor supplied and demanded are brought into equilibrium by rising and falling wage rates…no persistent unemployment above structural and frictional amount The Classical View of the Labor Market Classical economists assume wage rate adjusts to equate the q of labor demandd with q of labr supplied unemployment does not exist o Decrease in demand for labor wage rate fall amount of labor demaded fall o If households want more ouput than is currently produced, output demand will increase, otput prices will rise, the demand for labor will increase, the wage rate wl rise, and more workers will be drawn into the labor force o At equilibrium always full employment because those who are unemployed are choosing not to work Wages respond quickly to price changes Classical believe that AS curve is vertical and monetary and fiscal policy have no
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This test prep was uploaded on 02/20/2009 for the course SPAN 1220 taught by Professor Bevia during the Spring '08 term at Cornell.

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Chapter 14 review_StudyGuide - Chapter 14 review The Labor...

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