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Topic_5b - ES20013 Intermediate Macroeconomics 1 Topic 5...

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ES20013’ Intermediate’Macroeconomics’1’ Topic’5’ Aggregate’supply’ Based’on’Gartner’chapter’6’
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1. Meaning’of’potenCal’output.’ 2. Wages’and’unemployment’determinaCon’in’the’ labour’market.’ 3. Labour’market’equilibrium’and’involuntary’ unemployment.’ 4. Nominal’wage’rigidiCes’and’the’short-run’AS’curve.’ Plan’of’the’lecture’
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The’treatment’of’the’aggregate’supply’(AS)’so’far’has’ been’rather’simplisCc:’ a) Horizontal’AS:’ extreme Keynesian AS curve .’ b) VerCcal’AS:’ classical AS curve .’
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1.’PotenCal’output’and’the’labour’market’ In’this’secCon’we’answer:’ What’exactly’is’potenCal’output’Y*?’ How’is’potenCal’output’determined?’
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PotenCal’ output’ is’ what’ an’ economy’ produces’ if’ it’ leaves’no’available’factors’of’producCon’idle.’
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The’ parCal’ producCon’ funcCon’ is’ drawn’ for’ a’ given’ technology’ and’ K’ and’ indicates’ how’ much’ output’ is’ produced’with’a’given’labour’input’
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Labour demand: The’goal’of’the’Frm’is’maximize’proFts,’ The’classical’labour’market’
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The’ change’ in’ proft’ From’ hiring’ an’ addiConal’ unit’ oF’ labour’is:’ How’ much’ labour’ does’ the’ frm’ hire?’ The’ frm±s’ demand’For’labour’is’determined’by:’
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Labour supply: Basic’terminology:’ 1.’AcCve’populaCon’(AP t ):’size’of’the’populaCon’of’working’age.’ 2.’ ’Labour’force’(L t ):’number’of’persons’of’working’age’who’would’like’to’ work.’±an’be’view’as:’ where’π t ’is’the’parCcipaCon’rate.’ 3.’Employment’(E t ):’is’the’number’of’persons’having’a’job.’ 4.’The’number’of’unemployed’(U t )’is’then’simply:’ 5.’The’unemployment’rate’is:’
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Greece:’parCcipaCon’rate’(%),’employment’rate’(%)’and’discourage’workers’(‘000).’ Source:’OE±D.Stat’ 0’ 2’ 4’ 6’ 8’ 10’ 12’ 50’ 52’ 54’ 56’ 58’ 60’ 62’ 64’ 66’ 68’ 70’ Discourage’ ParCcipaCon’rate’ Employment’rate’
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Labour’supply’curve’
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Equilibrium in the labour market
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With’ perfectly’ flexible’ money’ wages,’ the’ classical’ labour’ market’ implies’a’verCcal’aggregate’supply’curve:’
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2.’Labour’market’equilibrium’and’ involuntary’unemployment’ In’this’secCon’we’answer:’ Why’there’is’unemployment’in’equilibrium?’
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Harmonized’unemployment’rates’(%).’ Source:’ OECD.Stat’ 0’ 5’ 10’ 15’ 20’ 25’ 30’ Denmark’ France’ Germany’ Greece’ Japan’ Korea’ Spain’ United’Kingdom’ United’States’
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7’ 9’ 11’ 13’ 15’ 17’ 19’ 21’ 23’ 25’ Q1-1999’ Q3-1999’ Q1-2000’ Q3-2000’ Q1-2001’ Q3-2001’ Q1-2002’ Q3-2002’ Q1-2003’ Q3-2003’ Q1-2004’ Q3-2004’ Q1-2005’ Q3-2005’ Q1-2006’ Q3-2006’
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