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macro Economics > Unemployment > Flashcards

Unemployment Flashcards

1
Q

labor force

A

The total number of people who are of working age, and able and willing to work

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2
Q

What is the natural rate of unemployment in the UK

A

5-6%

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3
Q

Define natural rate of unemployment

A

The unemployment that still exists despite the economy operating at a positive output gap

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4
Q

factors affecting natural unemployment

A
  1. Availability of job information
  2. The level of benefits. Generous benefits may discourage workers from taking jobs at the existing wage rate.
  3. Skills and education. The quality of education and retraining schemes will influence the level of occupational mobilities.
  4. The degree of labour mobility
  5. Hysteresis. A rise in unemployment caused by a recession may cause the natural rate of unemployment to increase. This is because when workers are unemployed for a time period they become deskilled and demotivated and are less able to get new jobs.
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5
Q

3 reasons why unemployment is bad

A
  1. Waste of factors of productions-> productively inefficient
  2. Unemployment benefits are expensive for the government and this creates opportunity cost
  3. lower standard of living
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6
Q

2 ways how employment is measured

A

Labour force survey- asks 40,000 households if they are employed
Claimant count- number of people who receive the job seeker allowance

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7
Q

How do you solve frictional unemployment

A

create more job centres

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8
Q

How do you solve cyclical unemployment

A

increase AD

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9
Q

What is real wage unemployment

A

When wages are set above the equilibrium (too high) meaning business can not afford to employ another worker causing there to be an excess supply in workers

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10
Q

How do you solve real wage unemployment

A

weaken trade unions

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11
Q

What is structural unemployment

A

the mismatch between skills workers have and the skills firms desire. This can often include geographical unemployment

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12
Q

Social effects of unemployment

A

It can lead to a person lacking confidence, motivation and self worth. In some cases it can lead to depression.

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13
Q

Why is unemployment desired

A
  1. higher incomes
  2. better use of factors of production
  3. less money needed for benefits
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14
Q

what is a recession

A

A fall in real GDP for two or more consecutive quarters

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15
Q

cyclical unemployment chains of reasoning

A
  1. low domestic demand means consumers are less willing and able to buy products at the given price level
  2. in order for firms to attract demand they may lower prices
  3. in doing so they may scale down production to maintain profit margins
  4. causing unemployment
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16
Q

Evaluation of recessions

A
  1. A recession may be due to a rise in population. If population was rising at 1% per year and GDP was increasing at 0.5% it would suggest GDP per capita as falling
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17
Q

causes of a recession

A
  1. economic shock such as natural disaster or terrorist attack
  2. high interest and taxes
18
Q

cyclical unemployment

A

unemployment caused by a fall in demand

19
Q

how can governments solve structural unemployment

A
  1. better and more accessibly training
    EG there has been £2.7 billion spending on apprenticeships according to the autumn spending review.
  2. make housing cheaper in areas where there is high economic activity (London)
20
Q

evaluation of the government offering vocational training funding

A
  1. It will be costly and there is a danger firms could make current workers redundant to benefit from the employment subsidies
21
Q

what is the poverty trap

A

when people choose not to work as being on unemployment benefits is more profitable

22
Q

3 policies to reduce poverty

A
  1. welfare benefits and progressive tax
  2. minimum wage
  3. direct provision of goods (free healthcare, education and subsidised housing)
23
Q

what does the Phillips curve show

A

it shows there is an inverse relationship between inflation and unemployment

EG there is high unemployment and low inflation

24
Q

what does a shift out in the pc represent

A

outward shift in AS

25
Q

what does a movement along the pc represent

A

a change in AD

26
Q

natural rate of unemployment

A

the rate of unemployment that exists when there is no cyclical unemployment

27
Q

evaluation to offering training to the structurally unemployed workforce

A

those over 55 may be pessimistic to learn new skills as they may be close to retirement or closed minded to the idea.

this argument in particularly relevant to the UK as we have an ageing population

28
Q

what’s the main purpose of economic activity

A

to satisfy wants and needs

29
Q

how to calculate the multiplier using GDP

A

change in GDP/change in injections

GDP on ice

30
Q

how else can you calculate the multiplier using MPC or leakages

A

1/1-mpc
(consuming always takes away from 1)

or

1/marginal propensity to withdraw
(change in leakages)

31
Q

Evaluation of increasing AD to combat cyclical unemployment

A
  1. may create a conflict with inflation

2. depends on what type of unemployment that the economy is suffering from.

32
Q

how does lower income tax increase the incentive to work

A
  1. workers now may keep a larger percentage of their income
  2. as a result being on unemployment benefits such as universal credit may become less rewarding and the opportunity cost of being unemployed may increase.
  3. this may encourage workers to find a job and to get the one they want they may take part in education schemes (such as the multiply programme)
  4. workers have better qualifications and the quality and quantity of the workforce may improve as a result.
  5. an increase in the supply of workers causes a fall in wages as there is more competition
33
Q

why are job vacancies so high in the UK

A
  1. as the UK recovers many firms seek to expand production in order to meet new demand
  2. in doing so they seek new employees
  3. however as voluntary unemployment lies at 21% (which grew by 1% over the past year) supply of labour may be limited and the vacancies may not be filled
34
Q

evaluation of supply side policies

A

this is not useful if there is demand deficient unemployment.

and will only be beneficial to when the economy is at full capacity

35
Q

when is monetary policy the best way to solve unemployment

A

when there is demand deficient unemployment.

however this is not relevant in the current climate in the UK as there is no spare capacity and inflation is at 7%

36
Q

what is stagflation

A

where there is high unemployment and high inflation

37
Q

why may stagflation occur

A
  1. supply side shocks such as increasing oil prices
  2. trade unions
  3. workers becoming less productive
38
Q

how is stagflation shown in the Phillips curve

A
  1. shift in the Phillips curve
39
Q

what does the long run Philips curve show

A

that the economy will always return to natural unemployment

40
Q

why are wages sticky

A
  1. employment contracts may guarantee wage increases. if this can’t be achieved and cost are rising employees may have no chance but to make them redundant
  2. minimum wage

macro Economics (8 decks)

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