Unemployment ⢠Unemployment rate (u) = (no. unemployed/labour ...
Unemployment Unemployment rate (u) = (no. unemployed/labour force) ×100 Participation rate = (labour force/population) ×100 Employment population ratio = (no. unemployed/population) ×100
Type of unemployment: Frictional- seeking jobs & matter of time b4 employed ( information gathering, temporary) Structural- mismatching btw available workers & characteristics and job requirements Cyclical ( u-u*)- seasonal Natural rate of unemployment (u*)o independent of economic cycle, o always exist even in full employment o equilibrium unemployment= frictional + structural o Movement in natural rates Level of unemployment benefits/newstart allowance Structural change, globalization, changes in production technology Union power Effectiveness of job search Cyclical unemployment/unemployment gap (u-u*) Output gap= (y-y*/y*)×100 (Y*=potential output; Y= actual output)
Fiscal Policy Pro: Can be directed more selectively at regions, industries and social groups. Can use taxation to discourage negative externality Short time lag Con: May affect output by affecting potential output Tax and transfer payment incentive may affect incentive of household and firms →supply side policy ( incentive may affect labour supply) The need to avoid large budget deficit will reduce the flexibility of fiscal policy as stabilization tool. ( Crowding out→ reduce long term economic growth) Tax incentive and spending may be spent on imports
Money & Open Market Operation Functions of money
Medium of exchange Unit of account Store of Value Standard of Deferred Payment
Total Factor productivity (TFP) Secondary factor of production. Factors other than K&L that affect output. Theory: 1.Diminishing return
(MPK is inversly related to k)
(MPL is inversely related to L) 2.Constant Return to Scale (CRS) All inputs (K&L) increase by the same proportion then output (y) will increase by the same proportion. Diminishing return-only 1 input is changing and all others are held constant. Solow-Swan model 𝑌
𝐾 ∆𝑘
𝜃 𝐿 =(d+n) 𝐿 + 𝐿
Total saving/investment=replacement investment + net investment (only +ve) Replacement investement- investment that is either to replace worn out depreciated capital or to provide new capital for growing population. Net investment= investment over & above replacement investment Economy’s Steady State (ss): Long term eq ∆𝑘 𝐿
𝑌
𝐾 ∆𝑘
= 0, 𝑎𝑛𝑑 𝜃 𝐿 =(d+n) 𝐿 + 𝐿
Type of unemployment: Frictional- seeking jobs & matter of time b4 employed ( information gathering, temporary) Structural- mismatching btw available workers & characteristics and job requirements Cyclical ( u-u*)- seasonal Natural rate of unemployment (u*)o independent of economic cycle, o always exist even in full employment o equilibrium unemployment= frictional + structural o Movement in natural rates Level of unemployment benefits/newstart allowance Structural change, globalization, changes in production technology Union power Effectiveness of job search Cyclical unemployment/unemployment gap (u-u*) Output gap= (y-y*/y*)×100 (Y*=potential output; Y= actual output)
Fiscal Policy Pro: Can be directed more selectively at regions, industries and social groups. Can use taxation to discourage negative externality Short time lag Con: May affect output by affecting potential output Tax and transfer payment incentive may affect incentive of household and firms →supply side policy ( incentive may affect labour supply) The need to avoid large budget deficit will reduce the flexibility of fiscal policy as stabilization tool. ( Crowding out→ reduce long term economic growth) Tax incentive and spending may be spent on imports
Money & Open Market Operation Functions of money
Medium of exchange Unit of account Store of Value Standard of Deferred Payment
Total Factor productivity (TFP) Secondary factor of production. Factors other than K&L that affect output. Theory: 1.Diminishing return
(MPK is inversly related to k)
(MPL is inversely related to L) 2.Constant Return to Scale (CRS) All inputs (K&L) increase by the same proportion then output (y) will increase by the same proportion. Diminishing return-only 1 input is changing and all others are held constant. Solow-Swan model 𝑌
𝐾 ∆𝑘
𝜃 𝐿 =(d+n) 𝐿 + 𝐿
Total saving/investment=replacement investment + net investment (only +ve) Replacement investement- investment that is either to replace worn out depreciated capital or to provide new capital for growing population. Net investment= investment over & above replacement investment Economy’s Steady State (ss): Long term eq ∆𝑘 𝐿
𝑌
𝐾 ∆𝑘
= 0, 𝑎𝑛𝑑 𝜃 𝐿 =(d+n) 𝐿 + 𝐿
