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ECO102H1 (155)

ECO100 - MAR 11

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University of Toronto St. George
James Pesando

Unemployment Recep ● The importance of fiscal policy ○ Change G ot T to directly change/shift AD ● => Monetary Policy ○ Changing the MS to affect AD through the Transmission Mechanism ■ 1) closed economy ■ 2) open economy ● net exports ○ MS => i => ( C & I & NX) => AD ■ interest rate => exchange rate ● Signal that we are not in LR equilibrium and may need intervention ○ Most concerned: recession ■ G can be increased, or increase MS ○ Unemployment ■ But is 0% unemployment natural? Labour Force ● Labour Force = Number of employed + Number of unemployment ○ doesn’t equal to the whole adult population ○ Unemployed people are people who want jobs but do not have them ■ People who do not work, and do not want to work, and NOT in the labour force ● Participation Rate = [(Labour force)/(Adult Population)] * 100% ○ Europe: low participation rate, early retirement ○ can be greater than 100% when teenagers are working ● Unemployment Rate = [(Number of unemployed)/(Labour Force)]*100% ○ The unemployment rate may fall if unemployment workers leave the labour force because they become discouraged and stop looking for work. ○ Decrease in the size of labour force and increases the unemployment rate ○ Can be greater than 100% if there is an inflationary gap and people are overworking ○ Examining changes in the unemployment rate in 2012, a few years after the “great recession”, this must be considered ■ declining because of new jobs and/or discouraged people? ● Question: Should the government make unemployment benefits more generous (easier to qualify; long period of benefits) in regions where unemployment is high? ○ What incentives will this create? ■ Would increase unemployment by discouraging unemployed people from leaving high unemployment regions ● Newfoundland ○ Depletion of natural Resources ■ Only a small window during the year are allowed to fish ○ The most generous unemployment benefits ○ People choose to stay at Newfoundland and do not adapt to the market Natural Unemployment ● If the number of jobs = the number of workers in the labour force, would the unemployment rate be 0%? ○ NO ○ Some unemployment is natural ● 1. Frictional Unemployment: Normal labour turnover ○ Search unemployment as people and firms search for good matches ■ giving people/firms to look for the right job/employee ■ matches - much more efficient ● 2. Structural Unemployment: Mismatch in skill, occup
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