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ECO100Y1 (438)

Topic 20 - Unemployment.pdf

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James Pesando

Topic 20 – Unemployment th March 16 1. Labour Force Activity 2. Types of Unemployment 3. The Natural Rate of Unemployment (NAIRU) -- Defined -- Determinants  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.  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.  Natural Rate of Unemployment (TEXT: NAIRU) -- Cyclical unemployment is zero  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
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