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16 Cards in this Set
- Front
- Back
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Real Wage Unemployment
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Real Wages are above Market Level - Some workers are willing to work for less than others
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Demand Deficient Unemployment
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Cyclical Unemployment due to change in Demand
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Frictional Unemployment
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Voluntary Unemployment for workers between jobs - usually short term
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Structural Unemployment
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Capital Labor Substitution occurs and there is long-term decline in demand
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Hidden Unemployment
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Discouraged Workers or others who have stopped looking for work
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Long-Term Unemployment
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> 6 Months of Job searching, typically structuraly unemployed
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Economically Inactive
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Working age people not seeking employment (early retirees, students, parents)
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What is Natural Rate of Unemployment
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• Equilibrium rate of unemployment • Only Unemployment is frictional, everyone who wants to work is working•••••
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Factors affecting Demand for Money
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• Prices • Interest Rates • GDP • Pace of Financial innovation•••
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Keynesian Demand for Money - Liquidity Preference
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• Transactions Demand - Money for typical goods and services - Higher Income Higher Transactions Demand • Precautionary Balances - Unexpected Expenditures - Higher Income Higher Precautionary balance • Speculative Balances - Money held in assets - Low Interest Rates means high Speculative Balances ••••
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What factors drive Cost Push Inflation
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• Rising costs of imported materials • Rising Labour Costs • Higher Indirect Taxes ••••
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What drives Demand Pull Inflation
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• Excessive Growth pushes up demand, causign inflationary gap••••••
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What raises Aggregate Demand
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• Reduction in Taxes • Rising Consumer Confidence • ER depreciation ••••
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How to Control Inflation
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• Central Bank sets IR • Monetary Policy controls demand by raising rates and contracting Money Supply • Discourage borrowing • Increase savings rate • ••
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What does Phillips Curve Illustrate
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• Inverse Inflation / Unemployment relationship • Shifts in Phillips Curve came from 1) Oil Shocks 2) Expansionary Fiscal Policy 3) High Interest Rates• Expectations Augmented Philips Curve says there is a short-run correlation of Inflation / Unemployment • Long Run Curve is vertical at natural unemployment
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Three Theories of Unemployment
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• Neo Classical - Unemployment is cured by wage reduction • Keynesian - Unemployment is cured by increasing demand • Monetarist - like NC
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