Unemployment, Inflation and Output Gap Flashcards
what were some features of the roaring 20s
jazz era, consumerism, investment, inventions, advertising
when was the stock market crash
1929
what does theory say should happen to inflation and growth if unemployment goes down
inflation up,
growth up
what does war do to gdp growth
falls (economic shock) then rises after as economy is restructured
what happened to gdp growth and unemployment during ww1
low gdp growth, high unemployment
what happened to gdp growth and unemployment during the roaring twenties
high gdp growth, low unemployment
what are two features of the great depression
stock market crash,
one of the big consequences is unemployment
what is the relationship between inflation and growth
positive relationship
what is the relationship between unemployment and inflation
negative relationship
what is the relationship between unemployment and growth
negative relationship
unemployed d (loose)
looking for a job, able to work but cannot find one
unemployment rate equation
unemployed / labour force x 100
participation rate equation
labour force / population of working age
what does N mean
employment, number of people working
what does U mean
unemployed, number of people unemployed, millions
what does L stand for
labour force (willing and able)
what does u stand for
unemployment rate
equation for u in symbols
u = U/L = (L-N)/L
what is unemployment rate (u) a good indicator of
how easy or difficult it is to find a job
what can the unemployment rate (u) overstate
those who are confident that they will find a job but haven’t accepted position
how can the unemployment rate (u) understate unemployment
discouraged to search for a job,
working part-time but want full time,
whose skills are not supported by job (phd),
marginally attached (looked in recent past but not currently looking)
frictional unemployment d
unemployment that exists in the economy due to people moving from one job to another, because of frictions in the market
structural unemployment d
unemployment resulting from a mismatch of skills due to the changing nature of the market
creative destruction (in terms of unemployment)
unemployment due to changing nature of the workplace due to advancements in technology etc
what does u* mean
natural rate of unemployment
symbol for natural rate of unemployment
u*
natural rate of unemployment equation (in words)
structural + frictional unemployment
cyclical unemployment d
unemployment due to the economic cycle
do countries have different or the same natural rates of unemployment
different
what is the uk natural rate of unemployment
6.9%
what is something that the unemployment rate cannot tell us (u)
if the rate is high because people are staying unemployed longer or because more workers lost jobs
who are the three states in the employment diagram
employment, out of labour force, unemployment
what are the flows between out of labour force and employment in the diagram
new entries (from out of labour force to employment), retirements (from employment to out of labour force)
what is the flow from employment to itself
quit to other jobs
what are the flows between employment and unemployment in the diagram
job finds (from unemployment to employment), lay offs / quits (from employment to unemployment)
what are the flows between unemployment and out of labour force in the diagram
unsuccessful new entries (from out of labour force to unemployment),
discouraged (from unemployment to out of labour force)
what does s mean
share of employed who lose or leave jobs in every period (job separation)
what does f mean
fraction of unemployed who find job each period (rate of job finding)
what does L mean§
labour force
equation for L using s and f
L = Nt + Ut
formula for ∆Ut+1 (star)
∆Ut+1 = sNt - fUt,
change in unemployment rate = employed who lose their jobs - unemployed who find new jobs
what is the change in unemployment rate given by (words)
difference between inflows into unemployment and outflows
equation for natural rate of unemployment using symbols
u* = s / (s+f)
beveridge curve d
curve that reflects the negative relationship between vacancies and unemployment
what was lord william beveridge’s statement
as vacancies increase the number of unemployed declines
explain the beveridge curve diagram
x - unemployment rate percentage
y - job vancancy rate percentage,
downward sloping curve like an l
where i the labour market tight and slack on the beveridge curve
tight at point a which is to the left at the top,
slack at point b which is to the right and at the bottom
explain features of tight labour market and where it is on the beveridge curve
at point a top left,
demand for labour high, low unemployment, employers experience difficulty finding qualified workers so vacancy rate high
explain features of slack labour market and where it is on the beveridge curve
at point b bottom right,
demand for labour low, high unemployment, few employers posting job offerings so vacancy low
what do points a and b relate to on the beveridge curve diagram (x - unemployment rate % y - job vacancy rate % downward sloping curve)
a = boom, b = recession
what are movements along the beveridge curve associated with
business cycle
what does the further the beveridge curve is away from the origin mean
the further away the curve from the origin the more inefficient the labour market is at matching open vacancies with people that are unemployed
what are features of a beveridge curve shift to the right (away from the origin)
more labour market inefficiency,
both higher job vacancy rates and higher unemployment than before,
both more open jobs and more unemployed people
what does frictional unemployment do to the Beveridge curve
more unemployment arises because it takes time to find a job that is a good fit, Beveridge curve shifts to the right
what does structural unemployment do to the beveridge curve
skills of labour force don’t match with skills employers want, higher vacancy and unemployment so shifts to the right
what does economic uncertainty do to the beveridge curve
when an economy’s outlook is uncertain, firms hesitant to make commitment to hire, beveridge curve shifts to the right
what are some other factors that could affect the beveridge curve
changes in the prevalence of long-term unemployment,
changes in the labour participation rate (don’t think you have to worry about this card too much)
hello future matthew
i am very interested as to when you will be seeing this,
it is currently 11/2/17 i hope revision is going well and i hope you’re happy and over anna more,
got sub focus tonight so its that weekend she was meant to be here and i just got a little sad listening to our songs,
i hope youre alright and revision is going well
who is searching for a job costly for
it is costly for both employer and employee to search for jobs
what does asymmetric information create in the job search market and what are some examples of asymmetric information in the job market
asymmetric information creates inefficiency (shift out of beveridge curve),
stuff like wages (sometimes not stated when applying) or other specific things)
why would a beveridge curve be far away from the origin
workers badly informed,
unable to take up offers due to mobility,
inadequate skills,
unwilling to change or adapt
why do we have people unemployed and at the same time vacant jobs not filled
labour market doesn’t clear in same way as goods market due to frictions, and matching newly unemployed with newly posted jobs is difficult
what is trade in the labour market for firms and workers
uncoordinated, time consuming and costly
how is trade in the labour market costly for workers
workers need to spend time and resources to locate suitable job opportunities
how is trade in the labour market costly for firms
firms need to spend time and resources to locate and screen job applicants
explain a perfectly competitive labour market
firms and workers meet costlessly and trade at a single wage, any excess labour supply absorbed instantaneously through fall in equilibrium wage
explain the current exam setup
section A - multiple choice 10%,
section B - 3 questions 25 marks each,
section C - 2 short questions, only answer 1, 15 marks2q
what does the matching function do
brings unemployed workers and vacancies together
what is the matching function (formula)
m(u,v),
u is stock of unemployed,
v is stock of vacant posts
what is the equation for the matching function
m = u^α v^(1-α),
u is stock of unemployed,
v is stock of vacant posts
what is the equation for labour market tightness
θ = v/u,
labour market tightness = stock of vacant posts / stock of unemployed
in the cobb douglas function of (Y=AL^αK^β) what does it mean if α + β = 1
constant returns to scale
in the cobb douglas function of (Y=AL^αK^β) what does it mean if α + β > 1
increasing returns to scale
in the cobb douglas function of (Y=AL^αK^β) what does it mean if α + β < 1
decreasing returns to scale
in the cobb douglas function of (Y=AL^αK^β) what does it mean if α > 0
positive marginal returns (is the same for beta repectively)
in the cobb douglas function of (Y=AL^αK^β) what does it mean if 0 < α < 1
increasing at a decreasing rate (is the same for beta repectively)
in the cobb douglas function of (Y=AL^αK^β) what does it mean if α=1
increasing at a constant rate (is the same for beta repectively)
in the cobb douglas function of (Y=AL^αK^β) what does it mean if α > 1
increasing at an increasing rate (is the same for beta repectively)
if the matching function is m=Au^αv^(1-α) then what could bring about a change in the A
cv website,
improvement in the job centre processes,
(these are improvements in matching)
if u goes up what does that do to the labour tightness equation
u up theta down, slack market, favours firms,
(θ = v/u,
labour market tightness = stock of vacant posts / stock of unemployed)
if v goes up what does that do to labour tightness equation
v up theta up, tight market, favours workers
job finding rate d
probability of unemployed worker finding a job
what is the job finding rate first bit of equation
m(u,v)/u,
matching function divided by the stock of unemployed workers (not sure about little u and U)
what is the job finding rate equation (f)
m(u.v)/u = (u^αv^1-α)/u = u^α-1v^1-α = (v/u)^1-α = θ^1-α=f,
where θ = v/u
are you more or less likely to get hired if the labour market is tight
more likely to be hired
what is the probability of finding a job related to
labour market tightness