ECO_29--Instructors_Presentation - I Introduction A Review...

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Macroeconomics for Today
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Chapter 10 / Exercise 2
Macroeconomics for Today
Tucker
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I. Introduction, A. Review 1. The model developed so far includes two markets. a. The market for real GDP (newly produced goods and services, usually called the goods market ). b. The market for assets (including both financial and real assets). With the help of several assumptions, the assets market is simplified to two financial assets: money and bonds. This market is commonly called the money market . 2. Remember, unemployment is one of the main concerns of macroeconomics. Therefore, labor markets are the focus of a lot of our research. B. The Labor Market 1. The AS curve shifts when production costs per unit change for the entire economy. a. Changes in input prices therefore can shift the AS curve. b. However, only changes in prices of inputs that have a noticeable impact on per unit production costs for the entire economy will cause a shift in the short-run AS curve that can be detected.
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Macroeconomics for Today
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Chapter 10 / Exercise 2
Macroeconomics for Today
Tucker
Expert Verified
c. Two factors can cause the AS curve to shift. An exogenous increase in the price of a key input (OPEC and oil in the mid-1970s) or a previous shift in AD that causes inflation expectation to change (the late 1970s). 2. The lag between changes in the price level and changes in input prices determines the slope of the short-run AS curve. 3. Labor is an obvious candidate to shift the AS curve since labor makes up about two-thirds of production costs in the United States. II. The Labor Market: Basic Concepts A. Basic Definitions and Unemployment 1. On the first Friday of every month the BLS releases the employment and unemployment report for the previous month. This report includes data on each of the variables defined here. 2. The labor force ( LF ) equals the number of people employed ( E ) plus the number of people unemployed ( U ): LF = E + U 3. The unemployment rate is the number of people unemployed as a percentage of the labor force ( U/LF ).
4. To be unemployed a person must be out of a job and actively looking for work. When people stop looking for work, they are no longer in the labor force (discouraged workers). 5. Frictional unemployment and structural unemployment are inevitable and in many ways desirable. Movement among jobs is a sign the economy is functioning well. a. Frictional unemployment is the portion of unemployment that is due to the normal working of the labor market; used to denote short-run job/skill- matching problems. b. Structural unemployment is the portion of unemployment that is due to changes in the structure of the economy that result in a significant loss of jobs in certain industries. c. Cyclical unemployment is the increase in unemployment that occurs during recessions and depressions. 6. We are most concerned with cyclical unemployment. B. Employment 1. Employment tends to fall when aggregate output falls and to rise when aggregate output rises.

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