ch 6 macro exam

Worker classified as unemployed when:

*Currently not employed *Actively seeking employment at the prevailing wage rate

Why are underemployment workers NOT counted in the calculations of the "official unemployment rate"

*It causes the official unemployment rate to be under-reported. *They are not working full time or they are overqualified for their job they have.

Explain what caused the massive decrease in the Labor Force Participation Rate since 2008.

*Massive number of workers who lost their job in 2008-2014 (Recession) were discouraged workers. As were new entrants to the labor market (younger) couldn't find jobs either, and stopped looking.

structural unemployment

*long-lived long-term unemployment involving persistent mismatch between the demand and supply for workers wihy a specific skill set/expertise. No, gvmt policies cant reduce structural unemployment.

2 situations where a worker is classified as UNDERemployed

*part-time workers wanting to work full-time *worker accepting the only available job, although they are overqualified for said position.

2 economic costs of unemployment

*the loss in income resulting from higher unemployment *the amount of goods&services not produces because fewer workers were employed.

frictional unemployment

*unemployment due to normal turnover in the labor market *short-lived, describes those "in-between" jobs No. b/c it is unavoidable and it is too short for affecteed workers/businesses to use said policies

the relationship between Potential GDP & Natural Rate of Unemployment

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GDP gap

difference between Potential GDP (Yp) & actual Real GDP (Y). **GDP Gap = Yp - Y

3 types of unemployment

frictional, structural, cyclical

Formula for Labor Force Participation Rate (LFPR)

labor force / working age population

labor force participation rate formula

labor force / working age population

labor force participation rate

labor force/working age population

structural unemployment

long-term unemploymen involving a perisistent mismatch between the demand&supply for workers with a specific set of skills & expertise. (longer-lived 2-5yrs)

labor force

the number of employed workers PLUS the number of unemployed workers.

labor force

the number of employed workers PLUS thee number of unemployed workers

natural rate of unemployment

the specific unemployment rate that results when the actual level of Real GDP = economy's Potential GDP

unemployed worker

the worker who: currently is not employed & is actively seeking employement at the prevailing wage rate

cyclical unemployment

unemployment that changes with short-run changes in production levles-- an increase in cyclical unemployment is due to a decline in the economy's level of production over the business cycle.

frictional unemployment

unemployment that is due to normal TURNOVER in the labor market (short lived because it describes those IN BETWEEN jobs) always occurs & is unavoidable in a market economy.

economic cost of unemployment

value of goods&services not produces (&income not earned) because a portion of the labor force was unemployed. (this relates to opportunity cost)

economic cost of unemployment

value of goods/servvices not produced (and income not earned because a portion of the labor force was unemployment

full unemployment

when the unemployment rate is at its Natural Level (unemployment rate=level of frictional unemployment)

Examples of discouraged workers

Adults fresh out of college, workers who have been laid off, applied for jobs but didn't get interviews.

At full employment, does any unemployment exist?

Yes, there will always be frictional unemployment. This type is due to normal turnover in the labor market. (Unemployment rate is always above 0%).

unemployment rate

# of people unemployed / # of people in labor force

unemployment rate formula

# of peopole unemployed/ # of people in the labor force

Why discouraged workers are NOT counted in the calculations of the official unemployment rate

A discouraged worker has stopped seeking employment, therefore they are no longer counted as unemployed. They are also not included in the labor force. *Offficial unemployment rate is under-reported

Provide the formula/definition used in class to determine the "GDP Gap"

Difference between Potential GDP (Yp) & actual Real GDP (Y) *Forumla: GDP Gap = Yp - Y

If the value of GDP Gap is negative, is the economy in recession or expansion?

Expansion- high output level, low unemployment, higher incomes. ((Yp-Y)<0)

4 distinct phases of the business cycle

Expansion- upward slope Peak- maximum Trough- minimum Recession- downward slope

How do the number of individuals in the Labor Force get calculated?

Number of workers who have a job + unemployed workers who are actively seeking work.

If the value of GDP Gap is positive, is the economy in recession or expansion?

Recession- output it less than what it could be. The unemployment rate is high & workers are earning less than what they could be earning. ((Yp-Y)>0)

If an unemployed worker is frustrated over job searching & stops looking for work... What happens to the official unemployment rate?

The official unemployment rate would not be effected. This worker is considered a "discouraged worker" and it does not impact the O.U.R

Does the existence of UNDERemployment result in the official unemployment rate over-reporting or under-reporting the true level of unemployment?

Under-reported.

working age population

all individual between the ages of 16-64 are eligible for inclusion in the labor force

working age population

all individuals between ages of 16 & 64 are eligible to be include in the labor force.

discouraged worker

an unemployed person who sought employment unsuccessfully, and being discourged, subsequently stopped seeking unemployment.

underemployment

an unemployment situation that includes: *part time workers wanting to work full time *a worker accepting the only job available although they are overqualified for said job

cyclical unemployment 2.

decreases during economic expansions & increases during recessions. it only lasts as long as a recession would last. They are both short-lived. The duration and severity of cyclical unemloyment is directly related to the duration & severity of the recession.

cyclical unemployment

changes with short-run changes in production levels an increase in cyclical unemployment is due to a decline in the economy's level of production over the business cycle. *Lasts only as long as the recession lasts. *Recessions are short-run events therefore cyclical unemloyment has a short-lived duration. *It could, but it hasn't.

discount rate

the interest rate the Federal Reserve charges on loans it makes to banks

Potential GDP

the level of Real GDP that the economy would produce if all of its labor and other resources were fully employed.

Potential GDP

the level of real GDP that the economy would produce if all of its labor and other resources were fully employed.