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Chapter Seven:. Unemployment. The Big Ideas of the Chapter…. The definition and causes of economic growth. The nature and cause of the business cycle. The nature of unemployment and its measurement. The definition of inflation and how it is measured.

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chapter seven

Chapter Seven:

Unemployment

the big ideas of the chapter
The Big Ideas of the Chapter…
  • The definition and causes of economic growth.
  • The nature and cause of the business cycle.
  • The nature of unemployment and its measurement.
  • The definition of inflation and how it is measured.
  • The overall effects of inflation on wealth and output.
what is the unemployment rate
What is the Unemployment Rate?

Unemployment rate = (unemployed / labour force) × 100

What is the Labour Force? Persons 15 years of age and older who are not in institutions AND who are employed or are unemployed and seeking work.

test preparation
Test Preparation
  • Key Questions 4 and 6 on Page 178.
three types of unemployment
Three Types of Unemployment
  • Frictional
  • Structural
  • Cyclical
frictional unemployment
Frictional Unemployment
  • Occurs when unemployed workers and firms are searching for the best available job-match.
  • Includes workers who are temporarily between jobs because of moving to new location or occupation.
  • The term 'frictional' is appropriate because it implies that no system is completely smooth.
structural unemployment
Structural Unemployment
  • Changes in technology etc. that alter the "structure" of the demand for labour.
  • The skills of a worker are no longer demanded, like blacksmiths making horseshoes after automobiles were invented.
  • The key difference between frictional and structural unemployment: structurally unemployed workers need retraining so it is more serious.
cyclical unemployment
Cyclical Unemployment
  • Caused by a decline in total spending.
  • Begins during the recession phase of the business cycle.
  • The result of an insufficient demand for goods
what is full employment
What is Full Employment?
  • Full Employment is something less than 100 percent employment of the labor force.
  • It occurs when there is no cyclical unemployment.
  • Some frictional and structural unemployment exists and is necessary for growth.
what is potential output
What is Potential Output?
  • Potential output occurs at the Natural Rate of Unemployment (NRU).
  • This is when the economy is said to be producing its greatest potential output.
  • The NRU occurs when the number of job seekers equals the number of job vacancies.
  • The structurally and frictionally unemployed just need time to be hired.
what are the economic costs of unemployment
What are the Economic Costs of Unemployment?
  • The GDP Gap (Difference between Actual and Potential GDP).
  • Okun`s Law (For every 1 percent above NRU, 2 percent of Potential GDP is Lost!).
  • Unequal Burdens (Occupation, Age, Gender, Education).
  • Social Costs and Tensions
test preparation1
Test Preparation
  • Key Question 8. Page 178