Unemployment

Question 1

labor force

Answer 1

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

Question 2

What is the natural rate of unemployment in the UK

Answer 2

5-6%

Question 3

Define natural rate of unemployment

Answer 3

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

Question 4

factors affecting natural unemployment

Answer 4

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.

Question 5

3 reasons why unemployment is bad

Answer 5

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

Question 6

2 ways how employment is measured

Answer 6

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

Question 7

How do you solve frictional unemployment

Answer 7

create more job centre
New housing affordable
Infrastructure - smart motorways

Question 8

How do you solve cyclical unemployment

Answer 8

increase AD

Question 9

What is real wage unemployment

Answer 9

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

Question 10

How do you solve real wage unemployment

Answer 10

weaken trade unions

Question 11

What is structural unemployment

Answer 11

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

Question 12

Social effects of unemployment

Answer 12

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

Question 13

Why is unemployment desired

Answer 13

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

Question 14

what is a recession

Answer 14

A fall in real GDP for two or more consecutive quarters

Question 15

cyclical unemployment chains of reasoning

Answer 15

1. cyclical unemployment–> less domestic demand so firms may scale down expensive production to maintain profit—>lower incomes—> more poverty—-> increased government spending

Question 16

Evaluation of recessions

Answer 16

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

Question 17

causes of a recession

Answer 17

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

Question 18

cyclical unemployment

Answer 18

unemployment caused by a fall in demand

Question 19

how can governments solve structural unemployment

Answer 19

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)

Question 20

evaluation of the government offering vocational training funding

Answer 20

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

Question 21

what is the poverty trap

Answer 21

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

Question 22

3 policies to reduce poverty

Answer 22

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

Question 23

what does the Phillips curve show

Answer 23

it shows there is an inverse relationship between inflation and unemployment

EG there is high unemployment and low inflation

Question 24

what does a shift out in the pc represent

Answer 24

outward shift in AS

Question 25

what does a movement along the pc represent

Answer 25

a change in AD

Question 26

natural rate of unemployment

Answer 26

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

Question 27

evaluation to offering training to the structurally unemployed workforce

Answer 27

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

Question 28

what’s the main purpose of economic activity

Answer 28

to satisfy wants and needs

Question 29

how to calculate the multiplier using GDP

Answer 29

change in GDP/change in injections

GDP on ice

Question 30

how else can you calculate the multiplier using MPC or leakages

Answer 30

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

or

1/marginal propensity to withdraw
(change in leakages)

Question 31

Evaluation of increasing AD to combat cyclical unemployment

Answer 31

1. may create a conflict with inflation

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

Question 32

Costs of unemployment

Answer 32

Loss of income for unemployed 
Less tax revenue and high gov borrowing 
Loss of human capital
Inefficient use of resources 
Social problems