Lecture for Friday 27 Aug

Question 1

At potential output Y*, what three things happen?

Answer 1

• there is zero cyclical unemployment
• structural and frictional unemployment still exist
• unemployment rate is at u* (ie. the natural rate of unemployment; full employment F + S)

Question 2

During recessionary gaps, which is bigger, u or u*?

Answer 2

u

Question 3

During recessionary gaps, is cyclical unemployment positive or negative? Why is this?

Answer 3

positive

this is because there are fewer jobs available fo there is more unemployment

Question 4

During expansionary gaps, which is bigger, u or u*?

Answer 4

u*

Question 5

During expansionary gaps, is cyclical unemployment positive or negative? Why is this?

Answer 5

negative
firms are producing more than their potential so firms need more workers so even if they are not perfect for the job, people get employed

Question 6

If real output is below potential output, how does the actual unemployment rate compare to the natural rate of unemployment?

Answer 6

This is recessionary gap which means that actual unemployment is greater than the natural rate of unemployment
There is positive cyclical unemployment

Question 7

If the real output is the same as the potential output, how does the actual unemployment rate compare to the natural rate of unemployment?

Answer 7

the actual unemployment is the same as the natural rate of unemployment

Question 8

If the real output is above the potential output, how does the actual unemployment rate compare to the natural rate of unemployment?

Answer 8

This is an expansionary gap which means that actual unemployment is less than the natural rate of unemployment
There is negative cyclical unemployment

Question 9

Why has the natural rate of unemployment in the US and NZ apparently declined since 2008?

Answer 9

Natural rate of unemployment only includes frictional and structural unemployment. But these are decreasing for a number of reasons:

• ageing labour force (older people are less likely to be quitting all the time)
• bigger cities (there is a growing labour force so there is less F and S unemployment)
• easier migration between cities: easier to get to the cities where there are the jobs and so there is less time being frictionally unemployed
• web-based job search: it is easier to see what jobs are out there so there is less time in-between jobs

Question 10

Changes in real GDP (output) are inversely related to what?

Answer 10

unemployment rate

Question 11

During times of recession, unemployment _______ substantially. There is extra unemployment called what?

Answer 11

rises

cyclical enemployment

Question 12

What does Okun’s Law describe?

Answer 12

Each extra percentage point of cyclical unemployment is associated with about a 2 percentage point increase in the output gap, measured in relation to potential output

Question 13

What is the equation used to describe Okun’s Law and what do each of the components mean?

Answer 13

(Y - Y*)/Y* = -2(u - u*)
where
Y = output
Y* = potential output
u = unemployment rate (actual)
u* = natural rate of unemployment

Question 14

How can you rearrange the equation for Okun’s Law to calculate the output gap?

Answer 14

Y - Y* = -2 (u - u)Y

Question 15

How can you rearrange the equation for Okun’s Law to calculate actual output?

Answer 15

Y = Y* -2(u - u)Y

Question 16

DO THE EXERCISES BITCH

Answer 16

yes

Question 17

What are two models that analyse the short run economic fluctuations?

Answer 17

• the Keynesian model

- the AD-AS model