1. Unemployment

2. 0 Aggregate Price Level Real Output (Y) LRAS SRAS AD Y1Y1 P1P1 Unemployment

3. 0 Aggregate Price Level Real Output (Y) LRA S SRA S AD 1 Y1Y1 AD 2 Y2Y2 P1P1 P2P2 Unemployment

4. 0 Aggregate Price Level Real Output (Y) LRAS SRAS 1 AD Y1Y1 SRAS 2 Y2Y2 P2P2 P1P1 Unemployment

5. I.Full Employment

6. A.Does not mean zero unemployment, it means all people able and willing to work have jobs at the going wage rate B.At any given time there will be people between jobs or looking for work C.Individual labor markets combine to create AS L and AD L

8. I.Full Employment II.Underemployment

9. A.While technically employed, many people do not work full-time and are underemployed 1.Women 2.Part-time employees 3.Developing countries 4.Seasonal workers

11. I.Full Employment II.Underemployment III.Unemployment

12. A.Unemployment Rate

13. 1.Typically the unemployment rate takes the labor force of a population (above 16 who are considered to be economically active) who are seeking employment or are employed 2.Does not include the elderly, military personnel, the disabled, parents on child leave, retirees, people in college or training schools

14. III. Unemployment A.Unemployment Rate B.Weaknesses in unemployment figures

15. 1.Each country has their own method of defining the labor force (for example those with disabilities or discouraged workers) 2.Accounting problems arise when unemployment figures are primarily based on those who have registered as seeking employment at agencies 3.They do not take into account those that are in training programs or people who are not seeking benefits

16. I.Full Employment II.Underemployment III.Unemployment IV.Costs of Unemployment

17. A.Economic Costs

18. 1.Loss of output 2.Lower income will diminish the tax base and lower income by the government 3.This will additionally burden the budget and will result in increased transfer payments in the form of social benefits and unemployment 4.That money will be diverted from another source (opportunity cost) which will take away from a public good 5.Long periods of unemployment make it harder for younger entrants to enter the job market

19. IV. Costs of Unemployment A.Economic Costs B.Social Costs

20. 1.There is a stigma attached to the unemployed 2.Self-image is related to things like substance abuse, broken families, mistreated children, ill health, and ill mental health

21. I.Full Employment II.Underemployment III.Unemployment IV.Costs of Unemployment V.Types of Unemployment

22. A.Structural Unemployment

23. 1.Unemployment that is due to labor mobility, declining industries, or technological advancements 2.Regional unemployment happens when a main industry suffers from permanent loss of jobs (rust belt) 3.Sectoral unemployment results from a lengthy and permanent decline (typewriters) 4.Techological unemployment occurs when people are replaced by machines (weaving machines)

25. V. Types of Unemployment A.Structural Unemployment B.Frictional Unemployment

26. 1.Laborers who leave one job to find another 2.Usually short term 3.Employee skills play a huge role in the ability to find a job 4.Other variables such as labor laws and unemployment benefits play important roles

27. V. Types of Unemployment A.Structural Unemployment B.Frictional Unemployment C.Seasonal Unemployment

28. 1.Employment based on the season (lifeguards, waiters at ski resorts, farmers) have to deal with periods of inactivity 2.Usually have a backup job or draw government benefits in the off-period

29. V. Types of Unemployment A.Structural Unemployment B.Frictional Unemployment C.Seasonal Unemployment D.Equilibrium Unemployment – the natural rate of unemployment

30. 1.Comprised of the structural, frictional, and seasonal unemployment

31. D. Equilibrium Unemployment – the natural rate of unemployment 1.Comprised of the structural, frictional, and seasonal unemployment 2.The natural rate of unemployment is the difference between full employment (everyone who is willing to work at a certain wage and is able to find work, AS L and AD L ) and the Total Labor Force 3.Since these people accept the real wage, anyone who is not employed is this equilibrium unemployment

32. D. Equilibrium Unemployment – the natural rate of unemployment 4.Anyone who has not accepted the real wage rate has done so voluntarily and is voluntarily unemployed 5.Since there will always be an element of voluntary unemployment in the economy it is natural and therefore the percentage of workers voluntarily unemployed is the natural rate of unemployment 6.Full employment = equilibrium unemployment = voluntary unemployment = natural rate of unemployment

34. V. Types of Unemployment A.Structural Unemployment B.Frictional Unemployment C.Seasonal Unemployment D.Equilibrium Unemployment – the natural rate of unemployment E.Critical/ demand-deficient unemployment

35. 1.When unemployment exceeds the rate at which the labor market is in equilibrium, there is disequilibrium unemployment a.Too little demand in the economy (demand- side) b.Imperfections in the market such as minimum wage and unions (supply-side)

37. V. Types of Unemployment A.Structural Unemployment B.Frictional Unemployment C.Seasonal Unemployment D.Equilibrium Unemployment – the natural rate of unemployment E.Critical/ demand-deficient unemployment F.Real Wage Unemployment

38. 1.When the AD L goes down but wages stay high there is real wage unemployment 2.The wage is too high due to unions and minimum wage (supply-side)

40. I.Full Employment II.Underemployment III.Unemployment IV.Costs of Unemployment V.Types of Unemployment VI.Measures to deal with unemployment

41. A.Interventionist solutions on the demand side

42. 1.Fiscal and monetary polices that are used to increase AD also decrease unemployment

43. 0 Aggregate Price Level Real Output (Y) LRA S SRA S AD 1 Y1Y1 AD 2 Y2Y2 P1P1 P2P2 Unemployment

44. A. Interventionist solutions on the demand side 1.Fiscal and monetary polices that are used to increase AD also decrease unemployment 2.Demand Management

45. a.Policies to decrease disequilibrium unemployment b.By increasing AD we can keep the same wage by get back into equilibrium

46. 0 AD 1,3 Average (real) wage rate Number of Workers AS Q1Q1 WeWe Q2Q2 W1W1 ab AD 2 c

47. VI. Measures to deal with unemployment A.Interventionist solutions on the demand side B.Interventionist solutions on the supply side

48. 1.Governments can intervene on the supply side in the following ways

49. 1. Governments can intervene on the supply side by: a.Government run training and skills programs b.Hiring agencies c.Grants/ subsidies to employers to hire fringe workers d.Regional incentives to get workers from depressed areas to move to areas in need of workers

50. 1. Governments can intervene on the supply side by: e.Subsidies in terms of rent and soft loans for start-up companies and those doing R&D f.Tax incentives to firms who invest in education/ training for employees

51. VI. Measures to deal with unemployment A.Interventionist solutions on the demand side B.Interventionist solutions on the supply side C.Market solutions

52. 1.Removing market imperfections

53. a.Lowering the minimum wage (or eliminating it), weakening unions, and lowering taxes on labor b.These solutions attempt to eliminate market imperfections and allow the market to naturally clear

54. C. Market solutions 1.Removing market imperfections 2.Decreasing the natural rate of unemployment

55. a.Tries to find incentives to get laborers to accept jobs b.Commonly referred to as structural reforms

56. i.Lowering social/ unemployment benefits ii.Lowering income taxes iii.Increasing overall labor flexibility (easier to hire/ fire workers, lowering severance pay) iv.Using retraining and education to enable workers to decrease time spent in between jobs

57. 2. Decreasing the natural rate of unemployment a.Tries to find incentives to get laborers to accept jobs b.Commonly referred to as structural reforms c.The critics of these policies say that unemployment has little to do with laborers being unwilling to accept jobs d.Critics also point to the social and fiscal costs associated with supply-side solutions