macroeconomics chapter 16 - inflation and unemployment in the long run

NOTE: in the long run the inflation rate is determined by the relative values of the economy's rate of money growth and of its rate of economic growth

...

structural unemployment occurs when

a firm is looking for a worker and an unemployed worker is looking for a job but the particular characteristics the firm seeks dont match up with the characteristics the the worker offers

long run Phillips curve

a vertical line at the natural rate of unemployment showing that in the long run there is no trade off between inflation and unemployment

what factors determine the inflation rate (short run)

anything that shifts either the aggregate demand curve or the short run aggregate supply curve

because an economy achieves its potential output in the long run an analysis of unemployment in the long run is an analysis of ______ and ________ unemployment

frictional and structural

why do companies employ efficiency wage theory

it will boost hte productivity of its workers for they become more contented and more eager to perform in ways that boost the firm's profits and will be less likely to leave their jobs

the reservation wage curve is a positive/negative realtionship between reservation wage and the duration of a person's job search

negative

an economy operating at its potential would have a lot/no cyclical unemployment

no

the best offer curve shows a positive/negatove relationship between the duration of the person's job search and the best quality of their offers

positive

what factors determine inflation rate (long run)

rate of money growth and the rate of economic growth

in the model of aggregate demand and aggregate supply increases in the money supply shift the aggregate demand curve to the right/left and thus force the price level upward/downward. money growth thus produces inflation

right ; upward

2 causes of structural unemployment are

technology and demand changes

efficiency wage theory

the idea that firms may hold to a real wage greater than the equilibrium wage

reservation wage

the lowest wage that an unemployed worker would accept if it were offered

according to the equation %change in P = %change in M - %change in Y if the money supply grows more slowly than potential output then...

the right hand side of the equaiton will be negative: the price level will fall and the economy experiences deflation