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LECTURE 3 (2009) - ECON 1002 Introductory Macroeconomics...

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1 1 Introductory Macroeconomics Week 3 Unemployment Business cycles ECON 1002
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2 Measuring macroeconomic performance: part 4 An economy is performing well if: 1. Rising long term living standards 2. The price level is under control 3. The needs for savings and investment are balanced 4. All individuals seeking work are employed 5. Extreme short run economic fluctuations are avoided
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3 Lecture 3: Learning outcomes By the end of week 3, you should be able to discuss How unemployment is measured The distinctions between disequilibrium (including cyclical) and equilibrium (natural, structural and frictional) unemployment Business Cycles: Definitions, Recessions and Expansions. Okun’s law Time and Macroeconomics
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4 Unemployment Australia’s Unemployment Rate unemployment rate 0.0 2.0 4.0 6.0 8.0 10.0 12.0 Feb-78 Feb-81 Feb-84 Feb-87 Feb-90 Feb-93 Feb-96 Feb-99 Feb-02 Feb-05 Feb-08 percent labour force unemployment rate
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5 Unemployment 1. Costs of unemployment 2. Measuring unemployment 3. Causes of unemployment: equilibrium and disequilibrium unemployment 4. Real and nominal wages 5. Cyclical unemployment
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6 1. The costs of unemployment Costs of long-term unemployment Social and financial costs to the unemployed themselves and their family Broader costs to the economy 1-loss of output (by definition) 2-Under-utilisation of resources leads to lower income for other people too Problems of the loss of skills =>reduction in potential output Rise in crime, vandalism Short-term unemployment may not be that costly: it could be a sign of an adaptable and mobile workforce
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7 2. Measuring unemployment Number of unemployed : Monthly ABS survey. Persons who have not worked the previous week, have been actively looking for a job the previous month and are ready to work next week Unemployment rate = number of unemployed labour force Labour force : Individuals 15 years and over who are working or looking for a job at current wage rates Participation rate :labour force/adult population
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8 Unemployment measures understates the true level of unemployment Discouraged worker : a person who has given up looking for a job because of lack of success in finding a job. Not counted in the
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