ECON 295 Study Guide - Final Guide: Frictional Unemployment, Nairu, Nominal Rigidity

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In the long run, increases in the labor force are more or less matched by increases in employment. In the short run, unemployment rate fluctuates a lot since changes in labor force are not matched by changes in employment. Net increase in employment: difference between all the jobs that are created and all those that are lost. New jobs for the growing labor force and replace lost jobs. Rapid economic growth = unemployment rate falls. Long term changes are explained by structural changes in the labor force. The amount of activity in the labor market is better reflected by the flows into and out of unemployment than by the overall unemployment rate. The official data understates the full effects of recession on unemployment because they don"t include discouraged workers leaving the labor force and underemployed workers. Ignores that some workers might have felt obliged to accept a lower-paid job.

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