AP Macroeconomics Ch

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28 Οκτ 2013 (πριν από 3 χρόνια και 9 μήνες)

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AP Macroeconomics Ch. 8 Notes


Business Cycle



Alternating rises and declines in the level of economic activity



Peak
-
temporary maximum, economy at FE, output at or very close to
capacity



Recession
-
period of decline which lasts for 6 months or more; decline
in total output, income, employment, trade, business activity



Trough
-
recession at lowest level, output and employment “bottom
out”



Recovery
-
output and employment rise toward FE, PL may begin to
rise



Cyclical impact on nondurable and durable goods


Unemploy
ment



UNE rate is a % of the civilian labor force that is unemployed



Who is NOT in the labor force? Under 16, institutionalized people or
people with disabilities, potential workers who are not employed and
NOT looking for work (students, retirees, homemake
rs, discouraged
workers), noncivilians such as armed forces



Criticisms of the way the UNE rate is measured
-
discouraged workers
who have quit looking for work are not counted, part
-
time or
underemployed worker are counted


Types of Unemployment



Frictional

-
“search” or “wait” UNE, workers looking for jobs or waiting to take
future job

-
caused by normal search time required by workers with marketable
skills who are changing jobs

-
inevitable, not necessarily “bad”

-
at FE, economy has frictional unemployment

-
di
stinguishing features as compared to other types of unemployment
-
enough jobs exist, people have required skills for the available jobs,
period of job search relatively short



Structural

-
mismatch between skills possessed and skills required for jobs or
geog
raphic mismatch between where the jobs are and where the
people are who need jobs

-
workers find it harder to obtain jobs without retraining, more
education or relocating, more long
-
term than frictional unemployment

-
at FE, economy has structural employment



Cyclical

-
associate with the recession phase of the business cycle

-
no jobs regardless of training, etc

-
FE occurs when there is NO cyclical unemployment


Definition of Full Employment



Full employment does NOT mean zero unemployment



FE occurs when cyclica
l unemployment is zero, i.e., economy is
experiencing only frictional and structural unemployment



Full
-
employment rate on unemployment or Natural Rate of
Unemployment (NRU)
-
# job seekers = # job vacancies



NRU varies over time


Costs of unemployment



GDP Gap

and Okun’s Law: UNE>NRU means that society is
operating inside its PPC,

actual GDP falls short of potential GDP
(GDP gap); Okun’s law
-
for every 1 percentage point by which the
actual unemployment rate exceeds the natural rate, a GDP gap of
about 2 percent

occurs