EC140 Lecture Notes - Unemployment, Foreign Exchange Market, Nominal Interest Rate
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EC140 Full Course Notes
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To measure total output in dollars, we add up the values of the many different goods produced. With base-period prices, we get real national income. Potential output: is what the economy could produce if all resources were employed at their normal levels of utilization. The output gap measures the difference between potential output and actual output. When y < y*, there is a recessionary gap. When y> y*, there is an inflationary gap. Employment: the number of workers (15+) who hold jobs. Unemployment: the number who are not employed but are actively looking for one. Labour force: the total numbers of employed + unemployed. Unemployment rate: the number of unemployed expressed as a percentage of the labour force. Unemployment rate = number of people unemployed/number of people in the labour force x 100. Even when y=y* some unemployment exists: frictional unemployment (natural turnover, structural unemployment (mismatch between jobs and workers)
