ECON 201 1st Edition Lecture 31Outline of Last Lecture I. Reasons for Structural Unemploymenta. Definition of unionsb. Definition of efficiency wagesII. Cyclical Unemployment a. Definition of cyclical unemploymentIII. Labor Market StatisticsIV. Definitions of Workersa. Definition of marginally attached workersb. Definition of discouraged workersV. Example Unemployment Rate ProblemOutline of Current Lecture I. Unemployment Rate Fallacya. Definition of unemployment rate fallacyII. Article: Fed’s Assessment of the MarketIII. Costs of UnemploymentIV. Economic Fluctuationsa. Three facts of economic fluctuationsV. Model of Aggregate Supply and Aggregate Demand (Short-Run)VI. The Aggregate Demand Curvea. Definition of aggregate demand curveCurrent LectureI. Unemployment Rate FallacyIf the unemployment rate decreases but the employment rate stays the same, then the unemployment rate is giving us the wrong signal. This is the unemployment rate fallacy: the belief that if unemployment is decreasing, the economy is doing better. Unemployment rate is apoor measure of health of the current labor market. It can be incorrect because the rate may decrease due to people exiting the labor force. These people may be discouraged workers, and as a result the number of unemployed would decrease also. II. Article: Fed’s Assessment of the MarketThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Today we also covered an article reading the Fed’s plans and assessments of the job market. Thefull article can be found at this link: http://www.dailymail.co.uk/wires/ap/article-2584785/New-Fed-chairs-dashboard-job-market-gauges.html III. Costs of UnemploymentThe primary economic costs of unemployment are present output and future output. The social costs are increased crime rate, lower standard of living, and the effects on people when they lose their job. People identify with their jobs, and when their jobs are taken away they may suffer from depression, substance abuse, and other health issues; suicide rates also increase along with money invested in government aid. IV. Economic FluctuationsThere are three main facts to know about economic fluctuations:i. Economic fluctuations are irregular and unpredictable. ii. Most macroeconomic quantities fluctuate together.iii. As output falls, unemployment rises. V. Model of Aggregate Demand and Aggregate Supply (Short-Run)The following diagram displays the short run effects of the aggregate demand and the aggregatesupply. As represented in the graph above, Y, or the real GDP and quantity of output, is expressed on the x-axis while the price level is expressed on the y-axis. SRAS is short run aggregate supply, LRAS is long run aggregate supply, and AD is aggregate demand. The model determines the equilibrium price level, and the equilibrium level of output (real GDP). This model is incredibly important to know for the final. There are two ways to emphasize this model: supply rules or demand rules. The “supply rules” thought is supported by Say’s law; it emphasizes supplying goods to the market so they will be bought. As workers are paid, income increases and supply increases because the workers will purchase more goods and services. The second emphasis is “demand rules”; this follows Keyne’s law, which is of the thought “if you make it, they will come”. Here, supply follows demand. Aggregate demand continued below.VI. The Aggregate Demand CurveThe aggregate demand curve, displayed above, shows the quantity of all goods and services demanded in the economy at any given price level. The aggregate demand curve slopes downward due to the components of the GDP: C, I, G, and NX. If we assume that the government fixed its policy, then prices will increase, consumers will buy less, and consumption,investment, and net exports will all
View Full Document