Exam 2 Chapter 9 & 10 Flashcards
How do you find the Working Age Population?
Total Population MINUS
- Young (less than 16 years old)
- Military
- Institutionalized (people in prison/mental hospitals)
= Working-Age Population
Labor Force + Not in Labor Force = ___
Working-Age Population
___ is the working-age people who are either employed or unemployed.
Labor Force
How do you calculate the Labor Force?
Employed + Unemployed
What 3 things constitute a person as Employed?
- people who worked 1 hour or more as a paid employee
- people who worked 15 hours or more as unpaid employee for family business
- temporary absent (sick, vacation, maternity leave)
What are the 3 things the Bureau of Labor Statistics defines a person as unemployed?
- Persons 16 years or older who had no employment during the survey (reference) week
- People who were available for work but didn’t (temporary illnesses preventing someone from work are NOT counted as unemployed)
- People who made specific efforts to find employment sometime during the 4-week period ending with the reference week
___ is a situation where someone wants to work but cannot find a job in the current market.
Unemployment
People who do not have jobs and who are not actively looking for work, or are not available for work are counted as ___
Not in the Labor Force
What are the 5 things that constitutes a person as not in the labor force?
- Homemakers
- Full-time Students
- Retirees who cannot work or choose not to work
- Those who cannot work because of a disability
- Those who choose not to work
How do you calculate the Unemployment Rate?
(Unemployed / Labor Force) x 100
How do you calculate Labor-force participation Rate (LFPR)?
(Labor Force / Working-age Population) x 100
What does the Labor-force participation Rate show you?
how many people of the population want to be working
What happens to the Labor-force participation rate (LFPR) during a recession?
Usually falls
What are two limitations of the Unemployment rate?
DOESN’T Show:
- Marginally Attached Workers
- discouraged workers (subset of Marginally Attached Workers)
- Underemployed Workers
Explain a Marginally Attached Worker
- are available for work
- have been looking for work in the past 12 months
- have NOT been looking for work in the past 4 weeks
*Are NOT counted in the labor force
Difference between a Marginally Attached Worker and a Discouraged Worker?
Marginally Attached Worker
- has been looking for work in the past 12 months
- has NOT been looking for work in the past 4 weeks
Discouraged Worker
-has NOT been looking for work because they believe they are no jobs available
Explain an Underemployed Worker
- Someone who is working less hours than they want to
- Someone who is working a job that requires less skill than what they are capable of doing
The unemployment rate may ___ the effect of the recession.
understate
___ is bought and sold in a market, just like other goods and services.
Labor
When the labor market is in equilibrium, there is no ___
Unemployment
What happens when the wage rate is higher than the equilibrium wage in the labor market?
- causes Surplus of labor
- Labor Supplied > Labor Demanded
- Causes Unemployment
True or False:
It is possible for the Unemployment Rate to reach a value of zero.
False
What are the two categories of Unemployment?
Natural Unemployment
Cyclical Unemployment
Unemployment that persists in an economy in the long run is called ___
Natural Unemployment
Unemployment caused by short-term economics fluctuations (phases of business cycle) is called ___
Cyclical Unemployment
What are the 3 things that Natural Unemployment includes?
- Frictional Unemployment
- Structural Unemployment
- Real-wage or Classical Unemployment
___ is caused by workers who are changing location, job, or career.
Frictional Unemployment
___ is caused by a mismatch between the skills workers can offer and the skills in demand.
Structural Unemployment
What are 3 things that cause Structural Unemployment?
- Technological Changes
- Change is Taste
- Reallocation of jobs (Ex: U.S. factory moves it’s business to China)
___ results from wages being higher than the market-clearing level.
Real-wage or Classical Unemployment
What are 3 things that can cause Real-wage or Classical Unemployment?
- Effective Wage
- Minimum Wage
- Unions and Bargaining
What are the PROs and CONs of Minimum Wage?
PROs
-provides basic standards of living
CONS
- minimum wage is just above poverty line causes unemployment
- creation of illegal jobs (hiring undocumented migrants at below-minimum wage or paying workers cash without reporting it)
How does the power of Labor Unions compare between the 1950s and present day?
Labor Union power is falling
1950s
-1/3 workers were unionized
Present Day
-12% workers are unionized with half of them working for government enterprises
Wages deliberately set above the market rate to increase productivity are called ___
Efficiency Wages
What are two reasons for using efficiency wages?
- Reduce turnover ratio
- Make employee more interested in keeping the job so they will work harder
What happens to the demand for labor during a recession?
It Decreases
Why doesn’t the labor market come to a new equilibrium at a lower wage price during a recession?
Real world wages are “Sticky” (slow to respond to economic shifts)
What are 3 things that cause wages to be sticky?
- Minimum Wage, Effective Wage, Unions
- Employers prefer to lay-off workers rather than cut wages (creates discouraged workers)
- Wages are often on contracts and can’t be changed until their end date
What is the effect of a recession on Frictional unemployment (Natural Unemployment)?
Ambiguous (may increase/decrease)
- Workers could retire early
- More people could go to college and stay in college later
What is the effect of a recession on Structural unemployment (Natural Unemployment)?
Short Term
-No Effect
Long-Term
-Increases unemployment
Because skills of the long-term unemployed deteriorate
Because some jobs move overseas during recession and never come back
What are 2 factors that affect unemployment?
Government Policies
- minimum wage
- Unemployment insurance
- Taxes and worker rights
- Professional training programs
- Government-run unemployment agencies
Job Searching Technologies
___ is money paid by the government to people who are unemployed.
Unemployment Insurance
What type of unemployment does Unemployment Insurance affect?
Frictional Unemployment
As Unemployment insurance increases, how is Frictional Unemployment affected?
Frictional Unemployment increases
Lowering taxes on wage ___ the unemployment rate
Decreases
How does new technologies, like the invention of the internet affect Frictional Unemployment?
Decreases Frictional Unemployment
-makes it easier to find jobs
A country with high Workers’ Rights has a ___ number of unemployed compared to a country with low Workers’ Rights
Greater
A country with low Workers’ Rights has a ___ number of unemployed compared to a country with high Workers’ Rights
Low
The main source of information on unemployment in the U.S. is a household survey called the ___, conducted by the BLS.
Current Population Survey (CPS)
What is the effect of the nominal GDP growing faster than prices and population combined in the past 50 years?
Purchasing power of avg person increased significantly
Increase in these 3 things can be defined as Growth
- nominal GDP
- real GDP
- real GDP per capita
How do you find the Real GDP per capita growth rate using “real GDP per capita”?
[(real GDP per capita current yr - real GDP per capita previous yr) / real GDP per capita previous year] x 100
How do you find the Real GDP per capita growth rate not using “real GDP per capita”
nominal GDP growth rate - inflation rate - population growth rate
Economic growth builds on itself overtime due to ___
Compound Interest
What is the Rule of 70 used to find?
How many years until the income doubles
What is the GDP per capita compounding formula?
GDP year A = GDP yr B x [(1+ real GDP growth Rate) / 100]^(YrA - YrB)
___ is a measure of the output per worker and is what drives growth.
Productivity
output per worker =___
GDP per capita
What are the 4 categories of Productivity?
- Physical Capital
- Human Capital
- Technology improvements
- Natural Resources
___ is the stock of equipment and structures used to produce goods and services.
Physical capital
Give 4 examples of Physical Capital
- Factories
- Cell phone towers
- Machines
And Investing
Capital investments are a part of ___
Physical Capital
Under investment/savings of Physical Capital, savings come from these two places.
- Within a country
- Abroad
What are the two sources that Domestic Savings come from?
- When households spend less than they earn
- Government revenues exceed non-capital expenditures
Explain the investment trade-off
An increase in savings means a decrease in today’s consumption
consumption + savings = ___
Income
Which countries save more, developing or developed nations?
Developed Nations save less
Developing Nations save more
What are the two sources that government investments come from?
- Borrowing
- Tax Revenue
___ is when a firm runs part of its operation abroad or invests in another company abroad.
Foreign Direct Investment
___ is investment funded by foreign sources that is operated domestically.
Foreign Portfolio Investment
Give 2 examples of a Foreign Portfolio Investment
Foreign investors buy
- U.S. Stocks
- U.S. Bonds
Why are foreign investments especially important for low-income countries?
- because they don’t have a lot of domestic savings
- transfer of technology and human capital
___ is the set of skills, knowledge, experience, and talent that determine the productivity of workers.
Human Capital
What are two things that increase human capital?
Education and Health
___ are innovations that cause the same inputs to produce more outputs.
Technological improvements
___ are production inputs that come from the earth.
Natural Resources
What is this formula used for?
gY = gA + α gK + (1 - α)gL
To measure the growth rate of the economy
Explain what each variable in the formula represents:
gY = gA + α gK + (1 - α)gL
α - the share of GDP (Y) distributed to owners of capital.
(1 – α) - the share of GDP (Y) distributed to laborers.
gK - growth rate of capital.
gL - growth rate of labor.
gY - growth rate of GDP.
gA – shows how much of GDP growth can be attributed to the technological change.
What years was the economy in stagnation?
1960s - 1980s
Explain the Juggling Act
Says there are trade-offs associated with promoting economic growth
Under the Juggling Act
The poorer the country, the harder the ___
trade-off
This ___ is one of the main justifications for foreign aid that provides loans or funding for investment and development
Poverty Trap
Which economic growth theory states that as physical capital increases, the resulting increase in GDP gets smaller and smaller
Diminishing marginal returns
The ___ is when at some point during capital accumulation, the economy reaches a “steady state”, and then stagnates
Catch-up effect
The ___ says that poor countries will grow faster than rich ones, until they “catch up” and all countries “converge” to the same growth rate and income level
Absolute convergence (catch-up) effect
What are the two things that Endogenous Growth Models focus on?
- Technological Improvements
- Physical Capital
___ states that the standards of living will converge only within groups of countries having similar characteristics.
Conditional Convergance
