Midterm Review_AAP-09_B&W

11 labor market equilibrium 29 unemployment

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Unformatted text preview: Labor Demand: the sum of individual employers’ Labor employers’ choices Labor Supply: the sum of individual workers’ Labor workers’ choices 28 Figure 3.11 Labor market equilibrium 29 Unemployment • Unemployment: Population over 16 years of age Population Labor force Labor Participation rate Participation Unemployment Unemployment Frictional Frictional Structural Structural Cyclical Cyclical Involuntary Involuntary Discouraged workers Discouraged 30 Consumption & Saving TOPIC 6 31 The Two-Period Model Two• Substitute for S from the second equation into the first to get a single intertemporal budget constraint: S = Y1 - C1 C2 = (1 + r) S + Y2 ⇒ C1 + C2 Y = Y1 + 2 1+ r 1+ r PV of Cons. = PV of Income 32 The Two-Period Model TwoPresent-value Budget Constraint (PVBC): C1 + C2/(1+r) = Y1 + Y2/(1+r) C2 (1+r)Y1 + Y2 Save everything today & consume only tomorrow. Wasting resources at this point * Can’t afford this point * Consume your income every period Borrow to the limit & consume everything today Y2 Y1 Y1 + Y2/(1+r) C1 33 The Two-Period Model (cnt.)...
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