Macro L9

Question 1

Causes of unemployment:

Answer 1

• Frictional
• Seasonal
• Structural
• Cyclical/Demand-deficient
• Real wage/Classical

Question 2

Frictional unemployment:

Answer 2

Short term transitional unemployment due to people moving between jobs

Question 3

In what type of economy is there bound to be frictional unemployment?

Answer 3

Mixed economy

Question 4

What factors affect the time period of frictional unemployment?

Answer 4

• Less job info available to workers, longer the period
• Higher level of unemployment benefits, longer the period
• Efficiency of labour markets

Question 5

Seasonal unemployment w/ example:

Answer 5

Some workers work on a seasonal basis eg. tourist industry

Question 6

Structural unemployment:

Answer 6

Demand for labour is less than its supply in an individual labour market in economy

Question 7

When does seasonal unemployment tend to rise and fall?

Answer 7

• Rise in winter
• Fall in summer

Question 8

Types of structural unemployment w/ examples:

Answer 8

• Regional eg. South –> full employment, North –> consistent unemployment
• Sectoral eg. focus from manufacturing to services
• Technological eg. workers replaced by tech

Question 9

Cyclical/Demand-deficient unemployment:

Answer 9

Unemployment that occurs when there is insufficient AD for all workers to be employed

Question 10

Why does this occur?

Answer 10

• Economies tend to experience business cycles
• Cycles are movements from boom to recession over time (currently not a boom)

Question 11

Real wage/Classical unemployment:

Answer 11

Real wages are deliberately maintained above the level that’s needed to reduce unemployment

Question 12

Causes of real wage unemployment:

Answer 12

• Minimum wages –> unemployed workers cannot get a job as employers aren’t legally allowed to pay workers less and hire more ppl
• Unemployed workers refused to take low paid jobs as they receive more from welfare benefits

Question 13

What could possibly solve structural unemployment?

Answer 13

• Making it easier to get cheap rented accommodation in areas of low unemployment to help workers in areas of higher unemployment to move
• Better retraining of workers

Question 14

1 conflict between one of the macroeconomic objectives + current account surplus

Answer 14

Economic growth tends to rise due to consumption/gov spending, which leads to increased demand in imports and greater current account deficit

Question 15

Diagrams representing unemployment:

Answer 15

1) PPF (point inside curve)
2) LRAS curve is to right of SRAS and AD equilibrium
3) LR trend rate of growth graph (negative output gap)

Question 16

1 conflict between one of the macroeconomic objectives and inflation

Answer 16

High economic growth is associated with low unemployment, however this increases inflationary pressures

Question 17

Gov deficit:

Answer 17

Spending more than gov revenue earned from taxation

Question 18

How is cyclical unemployment shown to be restored on the LRAS curve and explain this concept

Answer 18

• AD curve shifts to right
• Demand is now sufficient cancel demand-deficient unemployment (cyclical)

Question 19

How is cyclical unemployment shown to be restored on the LR trend rate growth graph?

Answer 19

Move to positive output gap by shifting upwards

Question 20

What positive impacts does migration have on employment?

Answer 20

• Spending of foreign workers creates further jobs in UK
• Employment increases, unemployment remains same

Question 21

What negative impacts does migration have on employment?

Answer 21

• Depresses wage rates, especially in low wages
• Greatly impacts UK workers with few skills

Question 22

Features of immigrants that are suitable for increased employment levels:

Answer 22

• More likely to be employed
• Less likely to claim benefits
• Maj of immigrants come to work & of working age
• Work skills
• Prepared to work for low wages

Question 23

Why are wage rates depressed as a result of greater net inward migration?

Answer 23

• Supply of labour is increased
• Equilibrium price of labour decreased, reducing wage rate

Question 24

What features of an immigrant means UK workers with low skills are greatly impacted by more migration?

Answer 24

• Have work skills
• Prepared to work for low wages

Question 25

What does the UK economy have to continue doing to maintain its employment levels?

Answer 25

Increase skills of its workforce over time

Question 26

When do problems occur in terms of employment and what must happen as a result?

Answer 26

• Skills required by jobs do not match those of job seekers, which may result in long-term unemployment
• Some firms do not even train workers so gov has to step in to correct this market failure