AP Macroeconomics Ch


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

temporary maximum, economy at FE, output at or very close to

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

recession at lowest level, output and employment “bottom

output and employment rise toward FE, PL may begin to

Cyclical impact on nondurable and durable goods


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


“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

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


mismatch between skills possessed and skills required for jobs or
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


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

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

NRU varies over time

Costs of unemployment


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