1. unemployment
    measure of the amount of people looking for work
  2. natural rate of unemployment
    • rate of unemployment in the long run
    • U.S. 5-6%
  3. Equlibrium
    supply of labor is in balance with the demand for labor
  4. labor market
    wages should adjust to reach equilibrium
  5. seasonal unemployment
    same time of the year due to seasonality
  6. cyclical unemployment
    temporary deviation from the long run amount of unemployment
  7. 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
  8. structural unemployment
    • something prevents wages from adjusting down to equilibrium
    • there isnt a job for everyone
    • causes: minimum wage laws, effiency wage, labor unions
  9. efficiency wage theory
    • above equilibrium wage rate
    • attracting better workers, making workers more loyal
  10. net exports= exports- imports
    trade balance
  11. net capital outflow=us investing in foreign- foreign investing in us
    • direct- physical capital
    • portforlio- foreign financial assets
  12. real exchange rate
  13. purchasing power parity
  14. Unemployment rate
  15. affects investment
    • technology
    • investor sentiment
    • government policy
  16. affects consumption
    • consumer confidence
    • consumer patience
    • disposable income
    • government policy on savings
  17. shifts of AD
    • consumption
    • investment
    • government spending
    • net exports
  18. in the short run as income goes down, employment goes down, and unemployment rises
  19. aggregate demand curve
    • Real interest rate increases
    • Cand I fall
    • AD falls
    • prices rise
  20. aggregate supply curve
    • long run- price of all goods rising
    • quantity of resources up as shifts right
    • unemployment increases, shift left
  21. keyns recession (demand)
    • sticky wages/ prices
    • drop in AD, sticky prices dont drop, supply >demand= surplus, lay off workers (income falls, unemployment rises)
  22. misperception theory (demand)
    drop in AD, prices fall, assume lack of demand for their prod, lay off workers (income down unemployment up)
  23. 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
Card Set