Ch 8 Equations To Know Unemployment rate number unemployed labor force Labor force unemployed employed Labor force participation rate in labor force adult population employment population ratio employed adult population Different types of employment structural workers that are looking for the jobs don t have the skills policies that increase structural unemployment increasing minimum wage law increasing unemployment benefits changes in goverment spending tends to be longer term maybe they are in school want to do an entry level job before frictional job search workers have the skills for jobs available tends to be short term cyclical unemployed due to recession lack of demand for good business cycle If the economy is in No recession no boom full employment 95 only natural unemployment 5 no cyclical unemployment actual output potential Recession actual output potential output actual unemployment natural rate weak demand for resources Boom Expansion actual output potential output actual unemployment natural rate Remember Inflation Potential GDP output level that is sustainable long term low inflation not so bad high inflation can cause recession or economic instability bad for economy Rule of 70 70 growth rate years for income to double Example growth rate is 10 it will take 7 years for income to double Unemployment in the labor force no job looking for work within the past 6 weeks temporarily laid off Not in labor force no job not looking Ch 16 Economic Growth Key sources of growth Gains from trade Entrepreneurial discovery Investment Less not Important for Economic Growth Population growth Natural resources Foreign aid Climate location Ch 18 International Trade Tariffs Quotas will lead to unintended bad consequences politically motivated open countries grow father than closed countries For Graphs you need to know how to read Example Hong Kong does not have many resources but has great economic growth 2 Example Questions How many cars w no trade 300 cars What is the price of cars w no trade 7 000 Import or Export You are now importing Price w trade 5 000 How many made domestically 250 How many purchased domestically 400 How many import export 400 250 150 Import World Price lower than domestic Domestic consumers are benfiting Domestic Producers are not Export If world price is higher than domestic price Prices of chickens with no trade 1 50 Import or Export Export Price w trade 2 50 How many made domestically 600 How many purchased domestically 350 How many import export 600 350 250 Ch 9 10 Goods and Services market short run resources prices are fixed higher price level is good for producers profits will be higher 3 annual growth is sustainable in the long run Loanable Funds Market Resource Market Downward sloping demand for labor higher wage rate fewer you want to employ Upward sloping supply curve of employees Foreign Currency Exchange Upward sloping supply curve comes from foreigners Downward sloping demand curve comes from U S residents to buy U S exports net capital inflows to buy U S imports net capital outflows As you move up the y axis the dollar depriciates being worth less exports increase because U S goods are cheaper imports decrease because foreign good are more expensive As you move down the y axis the dollar appreciates being worth more exports decrease because U S goods are more expensive imports increase because foreign goods are cheaper Business Cycle Phases Recession in short run Weak demand for resources High unemployment Low GDP Profits are low for firms Recession in long run Resource prices fall Interest rates fall makes production cheaper for firms after it returns to full employment Boom short run strong demand for resources high GDP output low employment profits are high Boom long run recourse prices interest rates rise makes production more expensive profits return to normal return to full employment There will be 50 questions on the test Chapter 8 16 18 9 10 Number of Questions 8 9 9 8 8 Ch 8 Example Questions Jennifer is tending to her home garden while awaiting recall from her seasonal part time job The Bureau of Labor Statistics would classify Jennifer as Answer unemployed In the early 1990s the U S government substantially reduced defense expenditures The resulting unemployment of defense related workers who possessed skills no longer needed by the economy is an example of Answer structural unemployment The natural rate of unemployment equals Answer the sum of frictional and structural unemployment Which of the following is a true statement Answer Unanticipated inflation is a change in the general level of prices that catches most decision makers by surprise Frictional unemployment is the result of Answer imperfect information and temporary periods of unemployment while workers are changing jobs The type of unemployment caused by changes in the business cycle is Answer cyclical unemployment The natural rate of unemployment Answer is associated with the economy s maximum sustainable output rate The labor force participation rate is Answer the number of persons 16 years of age and older who are either employed or actively seeking work divided by the total noninstitutional population 16 years of age and older Which of the following is a true statement Answer The concept of potential output might be thought of as the maximum sustainable output of the economy under normal circumstances Suppose an economy is operating at its maximum sustainable output rate Neither recession nor economic boom are present Which of the following would be true Answer The economy would be considered at full employment During this century the growth rate of real GDP in the United States has averaged approximately Answer 3 percent Use the data below to answer the following question s Population 200 million Number employed 120 million Number unemployed 30 million Population 200 million Number employed 120 million Number unemployed What is the employment population ratio of the economy Answer 60 percent Actual GDP Answer is less than potential GDP during recessions Use the data below to answer the following question s 30 million What is the labor force participation rate of the economy Answer 75 percent Economists use the term business cycle to refer to Answer fluctuations in the level of real output and employment Use the data below to answer the following question s Population 200 million Number employed 120 million Number unemployed 30 million What is the labor force of the
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