Chapter 3 vocab Flashcards
What is N?
Quantity of labor
What is K?
Quantity of capital
What is MPN?
Marginal productivity of labor
What is MPK?
Marginal productivity of capital
What is a supply shock?
Change in an economy’s production function
Such as weather, gov regulations, oil prices
What is the substitution effect?
Higher wage encourages work - movement along labor supply curve
What is the wealth effect?
Higher real wage increases income for the same amount of work, so a person can afford more leisure and supply less labor
- shift in the labor supply curve
What is full-employment output?
Potential output = level of output when the labor market is in the long-run equilibrium
What is the unemployment spell?
Period of time an individual is continuously unemployed
What is duration?
Length of an unemployment spell
What is frictional unemployment?
Search activity of firms and workers due to the heterogeneity of jobs and workers
What is NRU?
Output and employment are at full-employment levels
What is cyclical unemployment?
Difference between actual unemployment rate and the NRU
