ECON 2006, Chapter 7--Unemployment
ECON 2006, Chapter 7--Unemployment ECON 2006
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This 2 page Class Notes was uploaded by Shannon Cummins on Tuesday September 6, 2016. The Class Notes belongs to ECON 2006 at Virginia Polytechnic Institute and State University taught by Staff in Fall 2016. Since its upload, it has received 4 views. For similar materials see Principles of Economics in Macroeconomics at Virginia Polytechnic Institute and State University.
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Date Created: 09/06/16
Unemployment—8.29.2016 Unemployment – occurs when a worker who is not currently employed is searching for a job without success. 1. not employed 2. searching 3. without success Types of unemployment: Structural unemployment – unemployment caused by changes in the industrial makeup (structure) of the economy. o New technology replaces jobs and industries altogether (i.e. U.S. steel industry) Frictional unemployment – unemployment caused by time delays in matching available jobs and Natural and,workers. therefore, >o0% Also called the “matching problem.” Cyclical unemployment – unemployment caused by economic downturns. o The worst unemployment; results from an unhealthy economy; not natural. o 0%, < 0%, or > 0% 8.31.2016 Unemployment rate – the percentage of the labor force that is unemployed. U = number unemployed/labor force x 100% Labor force = employed + unemployed o Retirees, full time students, people in jail, children under age 16 are NOT in the labor force o Jobless people not actively seeking employment are NOT in the labor force Natural unemployment rate – the typical rate of unemployment that occurs when the economy is growing normally. U* = structural unemployment + frictional unemployment Full employment output (y*) – output level produced in an economy when the unemployment rate (u) is equal to the natural rate of unemployment (u*) Real GDP = y Economical cases: 1. Healthy economy: F > 0%, S > 0%, C = 0%...................U = U* and Y = Y* 2. Contractionary economy: F > 0%, S > 0%, C > 0%.......U > U* and Y < Y* 3. Expansionary economy: F > 0%, S > 0%, C < 0%..........U < U* and Y > Y* Shortcomings of the unemployment rate: Discouraged workers o If you are not actively looking for a job, you are not considered unemployed. In this case, unemployment rate is underestimated. Underemployed workers o If you have a bad job, you are not considered unemployed. In this case, unemployment rate is underestimated. Unemployment timeline o Unemployment rate lags behind economic activity. People may start looking for a job after the economy improves (making them unemployed when they weren’t previously), which may even lead to an increase in unemployment rate! Who is unemployed? o It is difficult to capture the amount of unemployed people. Some people have no incentive to inform the government of their unemployment. Unemployment rate is therefore underestimated. Labor force participation rate – the percentage of the population that is in the labor force Labor force participation rate = labor force / population x 100% 9.2.2016 Chapter 6 Example: Year Nominal GDP (q x p) Price Level Real GDP 2009 13939.0 109.7 100 x (13939/109.7) = 12706.5 2010 14526.5 111 100 x (14526.5/111) = 13086.9 Change in nominal GDP: 100 x (14526.5 – 13939.0)/13939.0 = 4.2% Change in price level: 100 x (111 – 109.7)/109.7 = 1.2% Change in real GDP: 100 x (13086.9 – 12706.5)/12706.5 = 3%
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