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Economics 102 - Final Exam Review

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ECON 102
Robert Gateman

Economics 102: Principles of Macroeconomics – Final Exam Review o Structural unemployment: mismatch between the structure of supplies of labour and structure of the demands of labour  Natural turn over and mismatch between jobs occurs even when there is full employment  Full employment occurs when there is only frictional and structural unemployment o Factors of production are at normal intensity, and the economy is at potential GDP o When GDP is below potential GDP, there is a rise in unemployment o When GDP is above potential GDP, unemployment falls below full-employment  Cyclical unemployment: unemployment that is neither frictional or structural o Changes with ebb and flow of the business cycle  Unemployment also has seasonal fluctuations (fishing season, ski season etc.) o Statistics seasonally adjust unemployment numbers to remove these fluctuations  Removing fluctuations shows cyclical and trend movements more clearly  Seasonally adjusted numbers show relative change rather than month to month Employment and Unemployment - Recent History:  Over the past 40 years, employment levels are in line with the growth of the labour force o In the long-run the trend is generally stable o In the short-run there are large fluctuations in unemployment levels Why Unemployment Matters:  The social significance of unemployment relates to economic waste and human suffering o Human effort is the least durable economic commodities (time cannot be recovered)  Long-term unemployment creates poverty, increases crime, mental illness and social unrest o In the past personal savings, charity or other help prevented starvation o Currently employment insurance and social assistance (welfare) creates a safety net o Short-term unemployment is feasible for many, but benefits do not last long-term Productivity:  Canada's GDP has increased relatively steadily for many years, shows steady growth o Employment has increased significantly,  Results from a rise in population and more participation o Canada's physical capital (buildings, factories, machines) have evolved o Productivity has increased in almost every year since 1960  Productivity: measure of the amount of output that the economy produces per unit of input o Inputs (factors of production): land, labour and capital  Labour productivity: amount of real GDP produced per unit of labour employed o Labour employed is measured by number of workers or number of hours worked Productivity - Recent History:  Labour productivity is measured by real GDP per employed worker and per hour worked o Per hour worked is more accurate as the number of working hours per worker change  Takes into account the changes in hours worked  Significant increases in labour productivity and GDP per employed worker (1976 to 2008) Why Productivity Matters:  Productivity is the largest factor of increased material living standards over time
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