Lecture3 - Lecture 3 3.1 Labour Market and Unemployment...

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ECON1002 Introductory Macroeconomics 1 Lecture 3 3.1Labour Market and Unemployment Labour demand and Labour supply Labour market equilibrium Unemployment 3.2Unemployment and Output Recessions, expansions and the business cycle Output gap Okun’s law
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ECON1002 Introductory Macroeconomics 2 Expected Learning Outcomes At the end of this lecture, you should be able to answer the following questions: How wages and employment are determined How unemployment is measured The distinctions between disequilibrium (including cyclical) and equilibrium (natural: structural and frictional) unemployment. Understanding unemployment Business Cycles: Definitions, Recessions and Expansions. Okun’s law Time and Macro
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ECON1002 Introductory Macroeconomics 3 Labour Demand   Wage = $10/hour Diminishing MP # of workers pencils/hour MP(L) VMP(L) @ $0.50/pencil 0 0 1 25 2 48 3 69 4 88 5 105
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ECON1002 Introductory Macroeconomics 4 Rule: Hire workers up to point where W = VMP(L) # of workers pencils/hour MP(L) VMP(L) Profit 0 0 1 25 25 $12.50 3.5 2 48 3 69 21 $10.50 7.5 4 88 19 $9.50 8 5 105 17 $8.50 7.5 Workers are demanded up to where the VMP(L) or MB equals the money wage or MC. New Wage = $9/hour, Pencils still @ $0.50. Labour Demand  
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ECON1002 Introductory Macroeconomics 5 real wage $9 CPI $10 CPI 3 4 Labour demand curve real wage = W CPI employment Labour Demand  
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ECON1002 Introductory Macroeconomics 6 real wage $9 CPI $10 CPI 3 4 employment Increase in productivity Labour Demand  
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ECON1002 Introductory Macroeconomics 7 real wage $9 CPI $10 CPI 3 4 employment Increase in the relative price of the pencil Increase in the VMP Labour Demand  
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ECON1002 Introductory Macroeconomics 8 real wage $9 CPI $10 CPI 3 5 employment Labour Supply The higher w , the more hours people are willing to work
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ECON1002 Introductory Macroeconomics 9 Labour Market Equilibrium real wage $9 CPI $10 CPI 2.5 3 5 employment
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ECON1002 Introductory Macroeconomics 10 Labour Market Equilibrium An increase in productivity real wage $9 CPI $10 CPI 2.5 3 5 employment
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ECON1002 Introductory Macroeconomics 11 Labour Market Recent cyclical movements Source: Billy Blog, http://bilbo.economicoutlook.net/blog/?p=9807 Are Wages and Labour productivity correlated?
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This note was uploaded on 08/18/2011 for the course ECON 1002 taught by Professor Markmelatos during the Three '10 term at University of Sydney.

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Lecture3 - Lecture 3 3.1 Labour Market and Unemployment...

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