Unemployment

Question 1

natural rate of unemployment d

Answer 1

the unemployment that exists when aggregate demand for labour equals aggregate supply, that is, voluntary, frictional unemployment

Question 2

unemployment d

Answer 2

the number of people of working age who do not currently have a job but are actively seeking work at existing wage rates

Question 3

what are the two main ways unemployment is measured in the UK

Answer 3

claimant count and the labour force survey (LFS)

Question 4

talk about the claimant count

Answer 4

includes those eligible to claim the Jobseeker’s Allowance (JSE) however excludes those who do not meet all the criteria (such as over 60s)

Question 5

talk about the labour force survey (LFS)

Answer 5

includes people who have looked for work in the past month and are able to start work in the next two weeks

Question 6

which is often larger, the LFS or the claimant count

Answer 6

labour force survey

Question 7

which is used more by the UK government, the claimant count or the labour force survey

Answer 7

labour force survey

Question 8

frictional unemployment d

Answer 8

unemployment due to workers moving between jobs

Question 9

structural unemployment d

Answer 9

unemployment due to a change in the pattern of demand and production (Mum says - end of coal mines)

Question 10

geographical immobility d

Answer 10

the inability of a factor of production, usually labour, to move to where jobs exist

Question 11

unemployment trap d

Answer 11

where the income tax and benefit system reduces the net increase in income people can expect from taking paid work. Thus many people would not choose to take a job

Question 12

equilibrium unemployment d

Answer 12

when aggregate demand for labour equals aggregate supply of labour

Question 13

replacement ratio d

Answer 13

unemployment benefits divided by the income an unemployed worker could receive if in work

Question 14

casual unemployment d

Answer 14

a kind of frictional unemployment occurring when workers are laid off on a short-term basis

Question 15

seasonal unemployment d

Answer 15

casual unemployment resulting from seasonal fluctuations in demand

Question 16

what are some explanations of frictional unemployment

Answer 16

university graduates may take time to find jobs at wage rates they are prepared to accept, inaccurate information about the job market

Question 17

what does a high replacement ratio create

Answer 17

a disincentive to accept employment

Question 18

example of seasonal unemployment

Answer 18

a café waiters in seaside towns

Question 19

deindustrialisation d

Answer 19

a fall in the proportion of national output accounted for by the manufacturing sector of the economy

Question 20

technological unemployment d

Answer 20

unemployment due to the introduction of labour-saving technology

Question 21

cyclical unemployment d

Answer 21

unemployment due to a lack of aggregate demand

Question 22

involuntary unemployment d

Answer 22

when a worker is willing to accept a job at the going wage rate but is not offered one

Question 23

classical or real wage unemployment d

Answer 23

unemployment that results from real wages being above their market-clearing level, creating an excess supply of labour

Question 24

what does de-industrialisation lead to

Answer 24

structural unemployment

Question 25

what type of unemployment is technological unemployment

Answer 25

structural unemployment

Question 26

how do you show cyclical or demand-deficient unemployment on a graph

Answer 26

AD moving to the left or PPF

Question 27

explain classical or real-wage unemployment

Answer 27

wage rate above market-clearing level

Question 28

how would you show classical or real-wage unemployment on a graph

Answer 28

wage rate above equilibrium

Question 29

what are the economic consequences of unemployment

Answer 29

waste of scarce resources
reduced consumer spending
higher spending on jobseeker’s allowance and reduced tax
longer a person out of work the harder it is to get a job

Question 30

what are the social consequences of unemployment

Answer 30

unemployment leads to crime
poorer health
divorce rates higher
lower life expectancy

Question 31

explain the hysteresis effect

Answer 31

tendency for unemployment to generate longer-term unemployment because of the damage that unemployment does to the skills and employability of those out of work

Question 32

what are some possible benefits from unemployment

Answer 32

firms benefit by offering reduced wages
help inflationary pressures
reduced environmental damage

Question 33

Phillip’s curve d

Answer 33

an economic model that shows a trade-off between inflation and unemployment

Question 34

what are some demand-side policies that could be used to reduce unemployment

Answer 34

increase government expenditure
decrease income tax
‘loosening’ of monetary policy by making credit available
regional measures such as subsidies or tax reductions for firms

Question 35

how would you show classical or real-wage unemployment on a graph

Answer 35

wage rate above equilibrium

Question 36

what are some supply-side policies that could be used to reduce unemployment

Answer 36

improved education and vocational training
ensuring there is affordable accommodation where the jobs are to reduce geographical immobility
reducing welfare benefits

Question 37

what does the Phillip’s curve basically say

Answer 37

there is a short-run trade off between unemployment and wage inflation

Question 38

think about the Phillip’s curve, what’s on the axis and what does it look like

Answer 38

inflation % on y
unemployment % on x
L shape

Question 39

explain the expectations-augmented Phillip’s curve (EAPC)

Answer 39

move up SRPC because of money illusion by workers, then workers and firms see through money illusion and refuse to supply or demand more labour so it moves across to new SRPC

Question 40

what NAIRU an acronym for

Answer 40

non-accelerating inflation rate of unemployment

Question 41

NAIRU d

Answer 41

the non-accelerating inflation rate of unemployment, that is, the level of unemployment at which there is no tendency for inflation to accelerate

Question 42

which is preferred as a measure of unemployment, NRU or NAIRU

Answer 42

NAIRU

Question 43

which way would the long run Phillip’s curve shift if there were supply-side improvements in the economy

Answer 43

to the left