Chapter 8 Unemployment and Inflation Questions Flashcard Example #22543

How does the unemployment rate overstate the true level of unemployment?
a worker who is quite confident of finding a job, but has not yet accepted a position is counted as unemployed
How does the unemployment rate understate the true level of unemployment?
People who would like to work but aren’t working don’t get counted as unemployed
What is the U-6?
The broadest measure of unemployment; the sum of discouraged workers, marginally attached workers, underemployed and the unemployed
What are the two types of unemployment?
Frictional and Structural
When does structural unemployment occur?
when the wage rate is persistently above the Wage equilibrium
What are the most important factors that can lead to a wage rate in excess of Wage equilibrium?
minimum wages, labor unions, efficiency wages, the side effects of government policies, and mismatches between employees and employers
What are the side effects of government policies
government policies designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect
What are the two different types of mismatches between employees and employers?
1) Skills mismatch
2) Geographic mismatch
causes structural unemployment
What are the 3 things that causes the natural rate of unemployment to change?
1) Changes in labor force characteristics
2) Changes in labor market institutions
3) Changes in government policies
How does change in labor force cause the natural rate of unemployment to change?
In general, unemployment rates tend to be lower for experience than for inexperience workers
How does change in labor market institutions cause the natural rate of unemployment to change?
1) labor unions
2) temporary employment agencies reduced frictional unemployment by helping match workers to jobs
3) technological changes increase the demand for skilled workers
How does change in government policies cause the natural rate of unemployment to change?
1) a high minimum wage can cause structural unemployment
2) generous unemployment benefits can increase both structural and frictional unemployment
How can government policies reduce the natural rate of unemployment?
1) Job training-provide unemployed workers with skills that widen the range of jobs they can perform
2) employment subsidies – payments either to workers or to employers that provide a financial incentive to accept or offer jobs
What matters when calculating real incomes?
The level of prices doesn’t matter, but the rate of change of prices does
What are loan contracts normally written in?
Nominal interest rate

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