low unemployment

Introduction	Jobless Jobs created in the economy
What is unemployment and how is it measured	People of the working agge who are without work. available for work and activly seeking owrk Labor force- economiucaly active population Different ways to measure- exp(people claiming benefits.
Hidden unemployment	People given up on looking Part time jobs, who dont want part time Working a job they are greatly over qualified for
Distribution of unemployment	Inequalities inside the economy, disparities - geographical disparities: some parts of the country are more prosperous - age disparities: unemployment rates in the under- 25 age group are hiugher thn the national average - ethnic differences: Ethinic minorities ofton suffer from higher unemployment, (may be from prejudice) - gender disparities: unemplyment among woman hhas been higher due to prejudice
Costs of unemployment	Important because of the high costs - costs to the unemployed: receive less income, lower standard of living, dejected, stress and erosion of mental health - areas of unemployyment there are poverty, homlessness, higher rates of crime and gang activity Connectted not solely -Costs of unemployment to the economy as a whole: less output, government spening
what are the main factos affecting the level of unemployment	Inflows and out flows dor unemplyment Inflows- people beoming unemployed ·         peopl;e who have lost their jobs ·         people who have resigned ·         people who hav left school and not found work ·         people who are trying to return to work after having left it ·         people who have immigrated into the country but have not yet found work outflows- no longer unemployed ·         people who find jobs ·         people who retire ·         people who go back into education ·         people who choose to stay at home ·         people who emigrate ·         people who give up search for jobs ·         people who die
Causes of unemployment	- the labour market Real wage W/P will be equal to the equilibrium real wage in the classical model  Without government intervention and trade unions, the labor market will always be in equilibrium in the classical model. This means that the real wage will be equal to the equilibrium real wage - the level of real wage which will equilibrate the labor demand and the labor supply.  Shows demand and supply for all labour It is also clear from the graph that the total amount of labor L is determined in the labor market. When the real wage is equal to the equilibrium real wage, the supply of labor is equal to the demand for labor and this is the amount that will be used in the production. If real wages are higher than the equilibrium real wage, the demand for labor will be less than the supply. The difference is the amount of unemployment beyond the natural rate of unemployment. In equilibrium, there is therefore no "involuntary" unemployment in the classical model.
Disequilibrium unemployment	Real wage unemmplyment Trade unions and government are interferein g with the market thus the wages are set abnove equilbrium, preventing market from clearing
Solution to real wage unemployment	Reduce trade unions ability to negotiate higher wages Lower minimum wage Effect poor workers, greater inequity
Demand deficent- unemployment or cyvlical unemployment
Solution to demand defecient unemployment	Due to a low level of eggregate demand. use keynesian demand managment policies Lower taxes. decrease interest rates, increasing market supply
Equilibirum unemployment	People are unwilling or unable to take the jobs that are available Lack education, or unwilling Gap becomes smaller as higher wages are offered ·         frictional ·         seasonal ·         structural
Frictional unemployment	In between jobs, left education waiting. Not considered bad -solutions: lower unemployment benefits Improbving flow of information
Seasonal unemployment	Unemployed on a seasonal basis Tourisms works in seasons Fix:take different jobs during off season- information
Structural unemployment	Worst type Structural unemployment is a form of unemployment resulting from a mismatch between demand in the labour market and the skills and locations of the workers seeking employment. Even though the number of vacancies may be equal to, or greater than, the number of the unemployed, the unemployed workers may lack the skills needed for the jobs, or they may not live in the part of the country or world where the jobs are available. ·         autaumation-reduces need for labour ·         lower cost of labour in foreing contries ·         changes in consumer taste (coal)
Solutions	·         A change in the education system- ·         adult retraining programs ·         give subsidies to firms to higher more people ·         ecourage people to move to an area ·         apprenticeship programs
Solutions to structural unemplyment/ marketbased	·         reduce unemployment benfits ·         deregualtion of labor market burden- people lose their benefits and now have even worse standards of living worst conditions for labour inequity
Are demand sife policies or supply side policies more effective in reducing unemployment	Both good
Crowding out	Problem with running a deficient Lowers incentive for businesses to invest Gov got opposite of what they wanted

p199- 201 work

For Work for multiplier go to

http://imgur.com/G1wqI

Aggregate supply

Aggregate supply

Aggregate supply	Aggregate supply is the total amount of goods and services produced by an economy in a year
Short run	Short run is when all the factors of production do not change do not change so there is a positive relationship between output and average price levels.
Shifts in sras	A change in anything other than price level will result in a shift in the SRAS curve Supply side shocks Typical changes- A change in the wage rates A change in raw materials A change in the price of imports A change in government indirect taxes and subsidies
Combining AD and AS in the short run	The economy will meet at the equalibrium
Long run aggregate supply	New classical LRAS Beleif in the effeciency of the market/ little gov. intervention    LRAS is vertical at Full employment level of output which represents potential output LRAS is based on quality and quantity independent of price level.
Keynesian AS	Phase 1: perfectly elastic phase- low output levels mean industries can increase output without incurring higher average costs due to spare capacity in the economy Phase 2: security phase- as the economy approaches Yf spare capacity is used up and FOP are scarce. Producers start competing for scarce FOP so increased output means higher costs so higher average price levels Phase 3: Economy has reached full capacity (yf) so output cannot be increased so competition amng firms for FOP results in increase average price levels (inflation) output cannot go up without a shift in the curve
Shifts in LRAS	Steady increase, move to the right if therwe is an improvement in quality of the factors of production, or increase. Factor of production Increase In quantity Increase in quality Land (all natural resources) Land reclamation (Netherlands reclaiming the sea from the north sea) Increase access to supply Discovery of new resources Tech advances that allow increased access or discovery of new resources Fertilizers irrigation Labor + entrepreneurship Increase of birth rate Immigration Decrease in natural rate of unemployment Education Training Re-training Apprenticeship programs capital Investment Tech advances that contribute to more efficient capital Resource and development
Supply side policies	Policies to increase supply Market based and interventionist Interventionist supply side policies (keynsisian) Market based supply side policies (classic) Investment in human capital (education) (training) Reduction in household income taxes Research and development Tax incentives, enforcing intellectual. Property rights or research and development in universities Reduction in corporate taxes Provision and maintenance of infrastructure Labor market reform 1)reduce trade union power 2) reduce or eliminate minimum wage 3) reduce unemployment benefits Direct support for businesses/industrial policies Anti trust laws, helping small/medium sized firms become established and grow Deregulation Infrastructure- large scale capital which is necessary for economic activity to take place, usually provided by government Privatizing Policies to increase competition

Aggregate supply worksheet

Aggregate supply worksheet

Objective 1 and 2: define short-run aggregate supply (sras)

AS is the total amount of goods and services that all industries in the economy will produce at every given price level

Always long and short run

Short run is when all the factors of production do not change

The short run in microeconomics is the period of time when the prices of the factors of the production do not change so there is a positive relationship between output and average price levels.

Shifts in the SRAS curve

A change in anything other that price level will result in a shift of the whole sras curve

Typical examples of supply side shock

A change in wage rates

Ec. Gov increases min wage

A change in cost of raw material

-          Like oil

Define supply side shock- factors that result in changes (usually in increase) in the cost of production.

Decrease costs will cause sras to increase shift right

Increase in costs will cause sras to decrease- shift let

Typical examples of suuplu side shocks.

Changes in wage rates	Increase in wages- increase in cost of production to firms so a decrase in SRAS. IE.  Gov raises legal minimum wgae
Change in costs of raw materials	To affect SRAS the raw material must be significant. IE. Oil So an increase in price of oil decrease in SRAS
Change in price of imports	Increase import prices decrease in SRAS A fall in currency value -> more expensive imports decrease in SRAS
Changes in gov indirect taces or subsidies	Increase in taxes-> incease cost to firm -> decrease in SRAS Decrease in subsidies -> increase cost to firm-> decrease in SRAS

Equilibrium

Short run macroeconomic equilibrium occurs when aggregate demand is equal to SRAS

The long run is a time period long enough that all factor prices change

LRAS is highly dbated among economists

The two types of LRAS are:

The Keynesian LRAS curve

The neo-classical LR         AS curve

-The keynesisian LRAS curve

-          Three phases.

Objective 4: distinguish between the short run aggregate supply curve (sras) and the long run aggregate supply curve (Lras)

Short-run aggregate cupply (sras)- shows a positive relationship between level of putput and average price levels because prices of factors of production are fixed

Long-run aggregate supply curve LRAS- Represents the level of output at full employment *natural rate of unemployment) or when the economy reaches its potential output

Keynesian AS

The Keynesian AS curve shows three phases and does not really distinguish between the SR and the LR

Phase 1: perfectly elastic phase- low output levels mean industries can increase output without incurring higher average costs due to spare capacity in the economy

Phase 2: security phase- as the economy approaches Yf spare capacity is used up and FOP are scarce. Producers start competing for scarce FOP so increased output means higher costs so higher average price levels

Phase 3: Economy has reached full capacity (yf) so output cannot be increased so competition amng firms for FOP results in increase average price levels (inflation) output cannot go up without a shift in the curve

Neo-classic monetarist (the Austrian school)

-          These schools of thought believe in the efficiency of the market so promote minimal gov intervention in the allocation of resources

-          LRAS is vertical at Full employment level of output which represents potential output

-          View asserts that the potential output is based entirely on the quantity and quality (productivity) of fop and not an price level

-          So LRAS is independent of price level, Price levels might raise but level of output does not change.

The LRAS curve will shift outward if there is an improvement in the quality (increase in productivity (output per unit of input) of fop) or an increase in the quantity of the factors of production

                -Improvement in quality and increase in quantity are both often due to advances in technology- so tech improvements are vital to supply side of any economy.

Factor of production	Increase In quantity	Increase in quality
Land (all natural resources)	Land reclamation (Netherlands reclaiming the sea from the north sea) Increase access to supply Discovery of new resources	Tech advances that allow increased access or discovery of new resources Fertilizers irrigation
Labor + entrepreneurship	Increase of birth rate Immigration Decrease in natural rate of unemployment	Education Training Re-training Apprenticeship programs
capital	Investment	Tech advances that contribute to more efficient capital Resource and development

Interventionist supply side policies (keynsisian)	Market based supply side policies (classic)
Investment in human capital (education) (training)	Reduction in household income taxes
Research and development Tax incentives, enforcing intellectual. Property rights or research and development in universities	Reduction in corporate taxes
Provision and maintenance of infrastructure	Labor market reform 1)reduce trade union power 2) reduce or eliminate minimum wage 3) reduce unemployment benefits
Direct support for businesses/industrial policies Anti trust laws, helping small/medium sized firms become established and grow	Deregulation
Infrastucture- large scale capital which is necessary for economic activity to take place, usually provided by government	Privatizing
	Policies to increase competition