ch13 - be zero. 4. Frictional and structural unemployment...

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I. Introduction a. Three markets in which households, firms, the government, and the rest of the world interact. the goods market, the money market, and the labor market. b. Because labor is an input, what goes on in the labor market affect the shape of the aggregate supply curve 1. If wages and other input costs lag price increases, the AS curve will be upward sloping. 2. If wages and other input costs are completely flexible and rise every time prices rise by the same percentage, the AS curve will be vertical. c. The classical view holds that wages always adjust to clear the labor market, that is, to equate the supply of and demand for labor. d. Unemployment imposes heavy costs on the unemployed and on the society. e. The Labor Market: Basic concepts 1. Labor force= employed + unemployed 2. Unemployment rate unemployed/ labor force 3. Even if the economy is running at or near full capacity, the unemployment rate will never
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Unformatted text preview: be zero. 4. Frictional and structural unemployment are inevitable and in many ways desirable 5. When the economy contracts, the number of people unemployed and the unemployment rate rise. 6. *Employment tends to fall when aggregate output falls and to rise when aggregate output rises. 7. A decline in the demand for labor does not necessarily mean that unemployment will rise. 8. A decline in the demand for labor will initially create an excess supply of labor. As a result, the wage rate will fall until the quantity of labor supplied again equals the quantity of labor demanded. 9. Classical economist believe that if the quantity of labor demanded and the quantity of labor supplied are brought into equilibrium by rising and falling wage rates, there should be no persistent unemployment above the frictional and structural amount. 10 18...
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This note was uploaded on 04/26/2009 for the course ECO 304K taught by Professor Hickenbottom during the Spring '10 term at University of Texas.

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ch13 - be zero. 4. Frictional and structural unemployment...

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