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
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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