Labour Force

Question 1

Full Employment

Answer 1

o The level of employment that is attained when the economy is operating at its productive capacity
o No cyclical unemployment

Question 2

Participation Rate

Answer 2

L/(L+N)

Question 3

Unemployment Rate

Answer 3

U/L

Question 4

Underutilisation

Answer 4

Underemployed + Unemployed

Question 5

Simple Rate of Labour Force Transitions

Answer 5

Ut+1 – Ut = sEt – fUt

o f is the rate which unemployed find work
o s is the rate which employed workers separate for work
o Firms firing workers → increase s
o Firms not hiring new workers → decreases f

Question 6

Steady State Unemployment

Answer 6

Ut+1 = Ut
sEt = fUt

u=U/L=U/(U+E)=U/(U+f/s U)=1/(1+f/s U)=s/(s+f)

Question 7

Natural Rate of Unemployment

Answer 7

The unemployment rate that arises when full employment exists

Question 8

Unemployment Gap

Answer 8

Difference between actual unemployment (ut) and natural rate of unemployment (ut*) is a measure of cyclical unemployment