Unemployment approaches

Question 1

types of approaches ?

Answer 1

Classical approach
orthodox keynesian approach
monetarist approach
new classical approach
new keynesian approach

Question 2

What does real wage mean ?

Answer 2

this is the money wage divided by the price index

Question 3

what is the price index ?

Answer 3

the amount of goods and services that a money wage can buy

Question 4

What is the classical approach ?

Answer 4

This is an approach which states that as long as money wages and prices were flexible and free to adjust, the labour market would always tend to clear at full employment equilibrium

Question 5

What is say’s law ?

Answer 5

This guarantees that aggregate demand would be sufficient to absorb the full employment level of output produced.
According to this law, supply creates its own demand in that the act of production yields income that will be sufficient to purchase whatever level of output is produced.

Question 6

What is the only type of unemployment that would exist in a classical approach ?

Answer 6

Voluntary unemployment

Question 7

When does classical unemployment occur ?

Answer 7

Real wage unemployment occurs when the real wage rate is kept too high, resulting in excess supply of labour .

Question 8

What are the three types of unemployment in the orthodox keynesian approach?

Answer 8

1. frictional unemployment
2. structural unemployment
3. demand-deficient unemployment

Question 9

What is frictional unemployment?

Answer 9

This is when people are moving between jobs. They are newly unemployed and they are searching for new employment (search unemployment)

Question 10

How is frictional unemployment cured ?

Answer 10

improving the provision of info. about employment opportunities. E.g. job centres

Question 11

What is structural unemployment ?

Answer 11

This is when technology advancements of changes take place which puts people out of work. Also known as mismatch unemployment

Question 12

What is demand-deficient unemployment ?

Answer 12

This is also referred to as cyclical unemployment and it means when aggregate demand is insufficient to provide employment for everyone who wants to work at the real wage.

Question 13

What is aggregate demand ?

Answer 13

The total planned expenditures of all buyers of final goods and services

Question 14

What is the sum for aggregate demand ?

Answer 14

AD = Consumer expenditure + investment expenditure + government expenditure + (Expenditure on net exports

Question 15

what is the main determiner of consumer expenditure in the orthodox keynesian approach ?

Answer 15

The main determinant is the level of national income - the higher the level of national income, the higher the level of total consumer expenditure undertaken

Question 16

What is the consumption function ?

Answer 16

The relationship between aggregate consumption and aggregate income

Question 17

What is the equation for the relationship between aggregate consumer expenditure and national income?

Answer 17

C = æ + ßY

Question 18

What is autonomous expenditure ?

Answer 18

Expenditure that does not depend on the level of national income

Question 19

What does marginal propensity to consume mean ?

Answer 19

This is the change in consumption expenditure resulting from an additional unit of income

Question 20

What are the main determinants of investment expenditure ?

Answer 20

1. firms past and current sale s
2. expectations about future sales and factor prices
3. the cost of of capital expenditure
4. the rate of interest

Question 21

What are the determinants of government expenditure ?

Answer 21

They are mainly the same as the determinants of investment expenditure

Question 22

What are the determinants of net exports ?

Answer 22

1. income
2. relative prices
3. non-price factors such as tastes

Question 23

what does marginal propensity to import mean ?

Answer 23

This means the change in import expenditure resulting from an additional unit of income

Question 24

What does fiscal policy mean?

Answer 24

this entails measures that alter the level and composition ofmgovernment expenditure and taxation

Question 25

What is monetary policy :

Answer 25

measures that alter the money supply and or interest rates

Question 26

What is the natural rate of unemployment?

Answer 26

This is the rate of unemployment that exists when the labour market clears and is in equilibrium, composed if frictional and structural unemployment

Question 27

what approach does the natural rate of unemployment refer to

Answer 27

the monetarist approach

Question 28

What does the new classical approach refer to ?

Answer 28

That the labour market continuously clears

Question 29

Theories referring to the new keynesian approach ?

Answer 29

1. efficiency wage model - labour turnover model, adverse selection model, shirking model, fairness model
2. Insider - outsider model

Question 30

what is the essence of efficiency wage model theories ??

Answer 30

That the productivity of workers depends positively on the real wage rate workers are paid.

Question 31

What does the labour turnover model suggest ?

Answer 31

That quit rates are a decreasing function of the real wage rate paid to workers. This means that firms have an incentive to pay an efficient wage to reduce the labour turnover rate

Question 32

What does the adverse selection model suggest ?

Answer 32

That firms offer that offer higher wages will attract the best or most productive applicants for a job.

Question 33

what does the shirking model suggwst ?

Answer 33

In many jobs, workers can exercise considerable discretion with respect to how well they perform their job and that there is a real possibility that some workers will shirk their work effort.

Question 34

What does the fairness model suggest ?

Answer 34

That workers productivity or effort is closely connectyed to their morale, which is in turn linked to the notion of being treated fairly with respect to [ay.

Question 35

What does the insider-outsider model suggest ?

Answer 35

the so-called insiders are the incumbent employees and the outsiders are the unemployed workers. The power of insiders arises from labour turnover costs.

Question 36

What is the non-accelerating rate of unemployment ?

Answer 36

This is the rate of unemployment at which inflation is stable