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April 12 Recitation

April 12 Recitation - sustainable level of unemployment b...

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Labor Force = #Employed + #Unemployed Labor Force Participation Rate = # in labor Force/# pop over 16 Unemployment Rate = # unemployed/ # in labor Force X 100% 1. Three types of unemployment a. Frictional unemployment a.i. Workers changing jobs to better suit their preferences and actively searching a.ii. Firms are looking for workers that match up better (More productive workers) b. Structural Unemployment b.i. Primary skills of workers are obsolete b.i.1. Introduction of new technology b.i.2. Changing market conditions c. Cyclical unemployment (Recessionary based unemployment) c.i. General downturn in business activity c.ii. Laid off workers & cutbacks c.iii. Unexpected fall in general level of demand c.iii.1. Firms are not hiring c.iii.2. Search efforts are not productive c.iii.3. Prolonged unemployment 2. Full employment a. Allowing for frictional and structural unemployment this is the maximum
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Unformatted text preview: sustainable level of unemployment b. U.S. full employment = 95% 3. Natural rate of unemployment (Not fixed) a. Amount of unemployment reflected by a.i. Job shopping a.ii. Imperfect information b. A sustainable rate c. At this rate the economy is fully employed d. U.S. Natural rate of unemployment is 10% 4. Actual versus potential GDP a. Potential GDP (Output) a.i. Max sustainable output level consistent with full employment of resources a.i.1. Size of labor force a.i.2. Quality of labor (productivity) a.i.3. Natural rate of unemployment 5. Inflation a. Sustained increase in general level of prices b. Decline in the value of money 6. Adverse affects of inflation a. High and variable inflation reduces investment b. Inflation distorts the information delivered by prices...
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