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-Markets work best when they are competitive- many buyers and sellers Institutions:Influence the pre worker production function and the economy Rule of law:peace, commercial law, limits govt power, rewards for innovation -markets flourish in economies with good institutions 2.10. Be able to explain how rising productivity can lead to falling employment in a givenindustry yet is essential for long-run growth. (notes)Labor saving technology being introducedLayoffs are essential for growth and rising real incomes: More output by fewer workers in a firm (More labor productivity and higher real wages) New industries employ laid off workers (employment actually rises) Labor saving technology - key to rising prosperity 2.11 Be able to explain what the future might portend for economic growth in the U.S. (notes)-Rising technology and K/L lead to growth Negative trends: 1.Slowing human capital formation 2.Falling labor force participation rate 3.Rising income inequality 4.Innovation slowed down5.U.S. economy has become less dynamic ** Growth tends to slow down and less population is working Slower growth seems likely for a few decades impact on the U.S2.14. Be able to to explain what command, pure market, mixed economies, and socialism are.Command economy: centrally planned economies- government controls all businesses and directs what they do. Pure Market: economy with no government intervention in marketMixed economy: mostly markets but with some intervention
Socialism: Some government ownership of firms and more government services in the U.S SECTION 3: The Business Cycle and Unemployment3.1. To be able to explain how unemployment and the unemployment rate are calculated and be able to explain the terms that are used in these calculations (i.e., labor force, employment, and unemployment). (Ch. 9.1 and notes)Unemployment: not working but actively searching Total unemployment rate (Nominal) = cyclically + frictionally + structurally unemployed Unemployment rate: (headline or u-3) = unemployed / labor force 3.2. To be able to explain, correctly use, and calculate the underemployment rate (U-6) and the labor force participation rate. (Ch. 9.1 and notes)Labor Force:(Unemployed + employed) / pop 16 and over Underemployment Rate: (U-6) = (unemployed + marginally attached + part time want full / (labor force + marginally attached)3.3. To be able to explain the natural rate of unemployment and its connection to potential GDP. (Ch. 9.2, 10.1 (end), and notes)Natural Unemployment= frictional + structural / Labor force -The natural rate of unemployment is a decent measure of the “normal” unemployment rate and what we can reasonably expect -Potential GDp grows from year to year and in recession real GDP is less than potential GDP Output gap = real GDP - potential GDP - real=potential when at full employment and at the natural rate of unemployment 3.4. To be able to explain what is meant by frictional, structural, and cyclical unemployment. (Ch. 9.2 and notes)Frictional---> job matching process Cyclical ---> business cycle Structural ---> lack of skills 3.7. To be able to use Okun's Law to explain the relationship between unemployment