Unemployment

Question 1

Involuntary - cyclical

Answer 1

Unemployment caused by insufficient aggregate demand within an economy

Question 2

Involuntary-frictional

Answer 2

Unemployed when moving between jobs

Question 3

Involuntary - structural

Answer 3

Unemployment resulting from mismatches between the labour supply available and the labour demand for differently skilled labour

Question 4

Demand and supply side factors

Answer 4

Demand side-
cyclical unemployment caused by demand side factors that is AD

Supply side- frictional and structural are caused by issues with the productive potential of the economy

Question 5

Voluntary employment

Answer 5

Where people are unwilling to accept the going wage rate despite there being jobs available

Question 6

Involuntary unemployment

Answer 6

Where people are unable to find a job at the current market wage rate

Question 7

Real wage unemployment

Answer 7

Unemployment that exists when the real wage is above the market clearing level where labour demand equals labour supply

Show on essentially a minimum wage diagram to show excess supply

Question 8

The natural rate of unemployment

Answer 8

The rate of unemployment that consists of all voluntary,structural and frictional unemployment

Frictional factors

The NRU may increase if the replacement ratio is too high

Replacement ratio=disposable income out of work/disposable income in work

A ratio close to 1 or above means a person could earn as much in benefits as they could in work
Reducing the ratio below 1 should reduce the incentive to be frictionally unemployed

Reduce it through :
Less generous benefits for unemployed
Minimum wage increase
Tax credits (allow for people in low paid jobs to keep some benefits)
Lower in mem tax or a higher tax free allowance

These frictional factors can add to the level of voluntary unemployment

Structural factors

Labour immobility
Information failure

Question 9

Natural rate of unemployment and aggregate supply

Answer 9

Natural rate of unemployment can be represented as the unemployment that exists when the economy is operating on the long run aggregate supply curve (or the vertical portion of the Keynesian AS curve)

Any attempt to reduce unemployment through demand side policies will only fuel inflation

Supply side policies will be required to reduce unemployment further

Question 10

Full employment

Answer 10

Level of employment where those who are economically active (either in work or seeking work) can find work if they are willing to accept the going wage rate