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unemployment
measure of the amount of people looking for work
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natural rate of unemployment
- rate of unemployment in the long run
- U.S. 5-6%
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Equlibrium
supply of labor is in balance with the demand for labor
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labor market
wages should adjust to reach equilibrium
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seasonal unemployment
same time of the year due to seasonality
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cyclical unemployment
temporary deviation from the long run amount of unemployment
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frictional unemployment
- there is a job for everyone- equilibrium
- even though theres a job for everyone, it is constantly changing
- it takes time to find a job
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structural unemployment
- something prevents wages from adjusting down to equilibrium
- there isnt a job for everyone
- causes: minimum wage laws, effiency wage, labor unions
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efficiency wage theory
- above equilibrium wage rate
- attracting better workers, making workers more loyal
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net exports= exports- imports
trade balance
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net capital outflow=us investing in foreign- foreign investing in us
- direct- physical capital
- portforlio- foreign financial assets
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real exchange rate
RER=pUSx NER/ pFOREIGN
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purchasing power parity
NER= pFOREIGN/pUS
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Unemployment rate
UR=U/(E+U)
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affects investment
- technology
- investor sentiment
- government policy
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affects consumption
- consumer confidence
- consumer patience
- disposable income
- government policy on savings
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shifts of AD
- consumption
- investment
- government spending
- net exports
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in the short run as income goes down, employment goes down, and unemployment rises
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aggregate demand curve
- Real interest rate increases
- Cand I fall
- AD falls
- prices rise
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aggregate supply curve
- long run- price of all goods rising
- quantity of resources up as shifts right
- unemployment increases, shift left
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keyns recession (demand)
- sticky wages/ prices
- drop in AD, sticky prices dont drop, supply >demand= surplus, lay off workers (income falls, unemployment rises)
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misperception theory (demand)
drop in AD, prices fall, assume lack of demand for their prod, lay off workers (income down unemployment up)
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real business cycle (supply)
- temporary changes in availability of resources and cost of production: "supply shock"
- As shifts left, higher prices, lower income, rising unemployment.
- as income falls prices rise: stagflation
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