Unemployment.

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Published on 2 Jul 2011
School
Department
Course
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Topic 20 t Unemployment
March 16th
1. Labour Force Activity
2. Types of Unemployment
3. The Natural Rate of Unemployment (NAIRU)
-- Defined
-- Determinants
z Labor Force Activity
Labor force = # of people employed + # of people unemployed but seeking employment
Unemployment rate = # of people unemployed/labor force;
Participation rate = labor force/adult population
Q: If number of jobs = number of workers, would the unemployment rate be zero?
A: NO.
z Types of Unemployment
Frictional: mismatch reflects normal labor turnover;
Structural: mismatch in skill level, occupation, or region
Cyclical: unemployment related to business cycle; macroeconomic in origin.
z Natural Rate of Unemployment (TEXT: NAIRU)
-- Cyclical unemployment is zero Î unemployment is only frictional or structural
-- When economy is at the natural rate of unemployment (NAIRU):
Real GDP = potential GDP;
Recessionary gap is zero;
Natural Rate of Unemployment (estimated by economists)
Canada: 6.0%
U.S: 4.5%
Actual Unemployment Rate
Feb 2010
Feb 2011
Canada
8.2%
7.8%
US
9.7%
8.9%
Monetary Policy: Bank of Canada controls money supply/interest rate to influence aggregate demand;
Fiscal Policy: Government uses expenditures/taxes to influence aggregate demand;
e.g. March 2009 Deep Recession
Central bank[s target interest rate:
Canada 0.5%
U.S. 0.5%
(Almost no potential for further stimulus to A.D. from interest rate cuts);
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Document Summary

March 16th: labour force activity, types of unemployment, the natural rate of unemployment (nairu) Labor force = # of people employed + # of people unemployed but seeking employment. Unemployment rate = # of people unemployed/labor force; Structural: mismatch in skill level, occupation, or region. Cyclical: unemployment related to business cycle; macroeconomic in origin. - cyclical unemployment is zero unemployment is only frictional or structural. - when economy is at the natural rate of unemployment (nairu): Monetary policy: bank of canada controls money supply/interest rate to influence aggregate demand; Fiscal policy: government uses expenditures/taxes to influence aggregate demand; e. g. march 2009 deep recession. U. s. 0. 5% (almost no potential for further stimulus to a. d. from interest rate cuts); www. notesolution. com. Result: u. s. and canada adopt expansionary fiscal policy. - transfer payments to households (unemployment insurance, social assistance, public pensions, etc. ) Revenues j outlays = 0  balanced budget. Revenues j outlays > 0  budget surplus.

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