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Principles of Economics- Mankiw (5th) 562

Principles of Economics- Mankiw (5th) 562 - 580 PA R T N I...

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580 PART NINE THE REAL ECONOMY IN THE LONG RUN find a job are not contributing to the economy’s production of goods and services. Although some degree of unemployment is inevitable in a complex economy with thousands of firms and millions of workers, the amount of unemployment varies substantially over time and across countries. When a country keeps its workers as fully employed as possible, it achieves a higher level of GDP than it would if it left many of its workers standing idle. This chapter begins our study of unemployment. The problem of unemploy- ment is usefully divided into two categories—the long-run problem and the short- run problem. The economy’s natural rate of unemployment refers to the amount of unemployment that the economy normally experiences. Cyclical unemployment refers to the year-to-year fluctuations in unemployment around its natural rate, and it is closely associated with the short-run ups and downs of economic activity.
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