ECO2004S Summary that will change everything! (1).pdf

Increase spending stimulus isnt large eno us economy

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Increase spending Stimulus isn’t large eno US economy) Only focus’s on unemp relief No large government p The Euro Bubble sing bubble d) standard fiscal policy measures (G & T) liquidity into the system: TARP = troubled m (Expansionary OMO) a decrease in the interest rate (2%) is not nvest after sales are plummeting Recovery and 56 Billion) e government g ough (3% of ployment projects d asset relief enough to
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CHAPTER 6: THE LABOUR MARKET Short Run vs. Medium Run SHORT RUN MEDIUM RUN Demand determines output Assume constant price level: firm are willing to supply labour and output at constant price Price and wages adjust over time Level of output is associated with natural unemployment Natural level is determined by supply factors Overview of the Labour Market QLFS: quarterly labour force survey Working age population WAP: total number of people aged 15-64 yrs who are not jailed or hospitalized. Divided into those in the labour force and those not Labour force: employed + unemployed SA has two measures of unemployment (always quote official) 3. Strict definition - Have not worked in the past 7 days - Willing to work - Can start work within 2 weeks - Taken active steps to find employment in the last 2 weeks 4. Expanded definition - Have not worked in the past 7 days - Willing to work - Can start work within 2 weeks *Includes discouraged workers Movements in Unemployment Unemployment rate can reflect: 1. An active Labour Market 2. Sclerotic Labour Market D u = U/F D u = the duration of unemployment U = unemployed (stock) F = the outflow from unemployment The greater U is, the greater D u is Movements are closely related to recessions and expansions: - Incerase Y = increase employment - Decrease Y = decrease unemployment
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Wage Determination Reservation wage = the wage at which workers are indifferent between employed and being unemployed Two features: 1. Workers are paid more than the reservation wage 2. Lower the unemployment rate, the higher the wage Explanation: 1. Bargaining 2. Efficiency wage 1. Bargaining Dependent on two factors I. Nature of the job: better skills = more power II. Labour market conditions: how difficult is it to find a job The more costly it is to replace workers and the easier it is for him/her to find a job, the more bargaining power he/she has 2. Efficiency wage Link to productivity of workers to wage Wage Prices and Unemployment Aggregate nominal wage depends on: W = P e F(u,z) (-,+) P e = expected price level U = The unemployment rate (bargaining/efficiency) Z = catchall variable (all other variables) P e is necessary to consider because firms and worse are concerned with real wages (W/P) Nominal wages are set when future prices aren’t known Real wages for worker = what they can buy Real wages for firm = cost of labour relative to selling price Z has a positive relationship with W - Unemployment insurance - Minimum wage - Employment protection Price Determination
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