MGEB06H3 Lecture Notes - Lecture 2: Nominal Interest Rate, Real Interest Rate, Fisher Equation

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Natural unemployment = frictional unemployment + structural unemployment. Actual unemployment = natural unemployment + cyclical unemployment. ***the natural rate of unemployment is not a constant and changes over time. Unions may demand higher equilibrium wages which causes the structural unemployment to increase: the presence of employment agencies may lower nru. These agencies help to facilitate the match between employers and workers causing the frictional unemployment to decrease: technological improvement may lead to higher nru because it lowers the demand for unskilled workers. They try to find a better job with high salary: j o b training programs and employment subsidies help to lower nru, job training programs helps unemployed workers to acquire skills that employers are looking for. Causing the structural unemployment to decrease: employment subsidies provide financial incentives to workers to accept new jobs or to employers to offer jobs. Causing the friction unemployment to decrease: inflation and deflation, inflation refers to a rise in the overall price level.

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