Unemployment/ Employment

Question 1

Classical unemployment

Answer 1

Wages in a competitive labour market are pushed above equilibrium

Question 2

What are the two main measures of unemployment?

Answer 2

1) The Claiment Count (number receiving benefits)

2) LFS-Labour Force Survey

Question 3

Demand-deficient unemployment (cyclical unemployment)

Answer 3

• Occurs when the economy is below full capacity

- Recessions tend to see firms lay off workers

Question 4

Frictional Unemployment

Answer 4

unemployment caused by the time people take to move between jobs

Question 5

Full employment

Answer 5

• The level of employment rates where there is no cyclical (demand-deficient) unemployment
• In the UK 4% unemployment is considered full employment
• The condition in which virtually all who are able and willing to work are employed.

Question 6

Unemployment rate

Answer 6

The % of the Labour Force not currently in paid employment

Question 7

Disadvantages of LFS and Claiment Count

Answer 7

• LFS survey could be subject to sampling errors
• Claiment count- government always changing the criteria
• Many genuine unemployed do not claim due to the “stigma effect”

Question 8

Structural unemployment

Answer 8

Occurs due to a mismatch of skills in the labour market

Question 9

Advantages of LFS and Claiment count

Answer 9

• LFS usually gives a fuller picture of unemployment

- numbers are usually bigger.

Question 10

Underemployment

Answer 10

Is the underuse of a worker because a job does not use the workers skills is part-time or leaves the workers idle.

Question 11

what does unemployment mean?

Answer 11

Is a person not currently in paid employment or self-employment but currently available for work during the reference period.

Question 12

what does employment mean?

Answer 12

Is a person who is willing to work is currently in paid employment
UK below 4% classed as full employment

Question 13

Non-accelerating inflation rate of unemployment

Answer 13

• Is a theoretical level of unemployment below which inflation would be expected to rise
• The NAIRU is the lowest unemployment rate that can be sustained without causing wages growth and inflation to rise.

Question 14

Causes of Unemployment?

Answer 14

• Occupational immobilities
• Geographical immobilites
• Technological change
• Structural change in the economy

Question 15

Consequences of unemployment

Answer 15

1) Loss of income, less consumption, less C, less GDP, shifts AD left
2) Waste of Resources - if individuals become or remain unemployed, who are educated and skilful these resources have been wasted. Operating within PPF
3) Philips Curve suggests inflation is likely to fall when unemployment is high

Question 16

Effects of full employment

Answer 16

• Full-employment may cause labour shortages and wage inflation.This can lead to ordinary inflation
• Full-employment has the positive effect of maximising potential output in an economy, achieving productive efficiency
• Reduce relative poverty, increase income, increase living standards
• Could lead to an increase in labour productivity as firms may increase the training they provide, increase LRAS

Question 17

What does the Philip Curve show?

Answer 17

The inverse relationship between unemployment and inflation in an economy

Question 18

According to Keynesian economics what is said about the inflation and unemployment?

Answer 18

There was a trade-off between inflation and unemployment. To reduce unemployment you would create inflation and vice versa

Question 19

What’s does NRU stand for?

Answer 19

Natural Rate of unemployment

Question 20

In the long-term what does the LRPC curve look like?

Answer 20

Just a vertical line that occurs at the NRU

Question 21

Money illusion?

Answer 21

States that individuals usually tend to view their income and wealth in nominal terms, as opposed to real terms
(Diagonal move)

Question 22

Adaptive expectations (inflationary expectations)

Answer 22

State that if inflation increased in the past year, people will expect a higher rate of inflation in the next year (shift in SRPC)

Question 23

What determines the NRU?

Answer 23

Not fixed forever, made up of frictional and structural unemployment so anything that changes will change the NRU line

Question 24

What could shift the NRU (NAIRU) to the left?

Answer 24

Supply side measures (such as Labour market or benefit reforms) May lower the long term natural rate of unemployment
This could mean that a stable inflation rate is associated with lower unemployment in the long term

Question 25

What is unemployment?

Answer 25

Those who are willing and able to work, who are actively seeking employment

Question 26

When AD shifts right where do we move/shift SRPC?

Answer 26

Move up the Phillips Curve

Question 27

When AD shifts left where do we move/shift SRPC?

Answer 27

Move down the Phillips Curve

Question 28

When SRAS shifts left where do we move/shift SRPC?

Answer 28

Shift SRPC right

Question 29

When SRAS shifts right where do we move/shift SRPC?

Answer 29

Shift SRPC left