12a.+Unemployment+and+Phillips+Curve

12a.+Unemployment+and+Phillips+Curve - International...

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Unformatted text preview: International Finance: “Internal Balance” • Economic Growth • Unemployment • Inflation • Balance of Payments (BOP) The “Big Four”: Internal Balance External Balance GDP = C + I + C + NX Economic Growth Y = Measures economic growth in the short-run A*f(L, K, N, H) Economic Growth Y = Y = A*f(1, K , N , H ) L L L L Causes economic growth in the long-run • Economic Growth • Unemployment • Inflation • Balance of Payments (BOP) The “Big Four”: Internal Balance Unemployment Tiananmen Square 1989 5 Causes of Unemployment 1) Frictional = market failure! 1) Seasonal 2) Structural = often blamed on trade & globalization; = but mostly due to technological change 1) Cyclical (Recessions) 2) Induced (Govt. Policies) 5 Costs of Unemployment 1) Okun’s Law ● growth = A*f(L,K,H,N) ● less workers means less “L” for economic growth 1) Less Wages (Y = wages, rents, profits, interest) 2) Less Consumption (Y=C+I+G+NX) 3)More Social Probs = crime, substnce abuse, social tensions, psychologically unhealthy…bad for security 1) Decline in Skills …bad for security US Ave. Annual Unemployment (%)US Ave....
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12a.+Unemployment+and+Phillips+Curve - International...

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