PRIN OF MACROECON
PRIN OF MACROECON ECON 2105
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This 4 page Class Notes was uploaded by Eloise Smitham on Saturday September 12, 2015. The Class Notes belongs to ECON 2105 at University of Georgia taught by Staff in Fall. Since its upload, it has received 41 views. For similar materials see /class/202513/econ-2105-university-of-georgia in Economcs at University of Georgia.
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Date Created: 09/12/15
April 2007 E CON 2105 Professor Hartman Chapter 10 Note Guide CLASSIFYING POTENTIAL WORKERS 1 Employed 2 Unemployed 3Not in the Labor Force To be considered unemployed in Bureau of Labor Statistics surveys a worker must be out of work and either 1 have sought employment in the previous four weeks g 2 be waiting to be recalled after a layoff Discouraged Worker Effect unemployed workers counted as Not in Labor Force rather than unemployed because they gave up looking for a job did not seek employment in last four weeks a usually increases during downturns and decreases during booms b means that unemployment data understate severity of downturns MEASURING UNEMPLOYMENT 1 In Levels count andor add up 2 In Percentages Unemployment Rate number of unemployed 100 eligible work force Why use the unemployment rate instead of the unemployment level The unemployment rate adjusts for differences in population when comparing two different economies a across regions and countries b in the same country over time THREE TYPES OF UNEMPLOYMENT L Frictional Unemploy39ment switching jobs job search relocation 2 Structural Unemployment mismatch between skills of workers and skills sought by employers 3 Cyclical Unemployment increases during recessions decreases during booms StriCt Interpretation of Classical School of Macroeconomic Thought no unemployment But U gt0 39 NATURAL RATE OF UNEMPLOYMENT U U frictional unemployment rate structural unemployment rate The natural rate of unemployment is the unemployment rate existing when the economy is in longrun eqm 39 In long run equilibrium at Y an economy will have a positive unemployment rate This rate u is the natural rate of unemployment L Page Lafa YgtY ltLAE W unca ECON 2105 BE ALERT IN LECTURE SOME TOPICS COVERED NOT BE ON THE NOTE GUIDE CHAPTER 17 PHILLIPS CURVE From A W Phillips study of wage changes in percentages and unemployment rates Data plotted with percentage change in wages on the vertical axis and u on the horizontal axis Most studies today use in ation fates on the vertical axis and unemployment rates t 32 4 loo Recall the foimula for in ation is 7721 739 l t r Lila 19505 and 19603 US In ation and Unemployment Rate Data Plot E d 17 5 72 n r u 595 R1 In ation Rate mfa Lowe t A w z 1i Unemployment Rat a I e U vo Tradeotf between in ation and unemployment rates implying a sacri ce ratio The Phillips Curve was originally interpretedasa Rlr Siltle menu 0 0 V e O SACRIFICERATIO POLO chmon MS interpfei i ba 323501ng I Employment or output loss associated with a onepercentage point reduction in the rate of m atlon u B U A likw lj m k on gl 39 ML 4 Formula for sacri ce ratio 7TB TTA KHHOA 2 quot Mihv w A mayo 957 2 173 In our example the sacri ce ratio is a a The sacri ce ratio equals 1the slope of the Short Run Phillips CurveSRPC 3 Jam SRPC M SloPC quot5 UB UA How does a shi in AD have an e ect on in ation and unemployment Draw a Phillips curve diagram below on the left and an aggregate supplyaggregate demand diagram on the right for the data below In ation Unempl Rate Real Y trillion Price Level 1967 309 384 3640 334 1968 414 35 3795 348 i SRAS Price Levels Ablg 39 lab mr mrH 3097 V 33394 bh r Q W 139 gt M We Fma muck 20m I an ell CNS viN An increase in aggregate demand causes a move to the lot HMN 13quot along a given SRPC An decrease in aggregate demand causes a move to the S 00 k 2 05 along a given SRPC BREAKDOWN OF THE PHILLIPS CURVE Started in the late 1960s or early 1970s One explanation previous results just a coincidence without economic signi cance Other explanation nagrego re Su o Y SkoQkS Ski 0 C RELATIONSHIP BETWEEN SRAS AND SRPC brow Um diagrams M We 9 Past How are prices and in ation related If in ation gt 0 or if in ation increases prices usually A CH 05 How are real GDP and unemployment rates related Ifoutput increases rms need mgg workers So price levels and in ation are usually as Htd related and real GDP and unemployment rates are usually Aggg h m 5 related RELATING THE LONG RUN PHILLIPS CURVE AND LONG RUN AGGREGATE SUPPLY Assumption If the economy begins in long run equilibrium a positive AS shock is needed to produce long run growth An increase in the money supply increases aggregate demand increasing price levels output and possibly in ation in the short run Show the short run effects on an increase in the money supply in a Phillips curve diagrain and an ASAD diagram below i Price Levels P1 1 l M gtM0 PiO ADOMO m Long Run Impact of an Increase in the Money Supply Recopy the Short Run from above I Law We 54 5mg AD mS M l 15 Abe Mo 33 va wig R U UO i U Yo Y RealY ye Z M va 2 1 l QM w 2 In the long run when all prices are exible the price level increases by the same percentage as the increase in the money supply Output returns to the long run equilibrium level Also the unemployment rate returns to the long run equilibrium level U0 in the diagram above is the natural rate of unemployment A Vertical LRAS 1m flies a UQW HQCA LRP C and a Ver h ml LRPC Implics CL Varquotch LMS H 39 gm 4 Uef l lCr J LRPC does 1 91 imph hcrh over me the SRPCS magi rotate 5 biCoMQ um th
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