Macroeconomics Chapter 9 Unemployment and its Natural Rate
• Country that saves & invests high fraction of its income enjoys more rapid growth in its capital
stock & GDP than a similar country that saves & invests less
• Economy’s Natural Rate of Unemployment: amount of unemployment that the economy
• Cyclical Unemployment: year-2-year fluctuations in unemployment around its natural rate
• Natural unemployment does not go away on its own
How is Unemployment Measured?
• Employed if he/she spent some of previous week working at a paid job
• Unemployed if he/she is on temporary layoff or is looking for a job
• Not in the labour force ie. Full-time student, homemaker, retiree
• Labour Force = # of Employed + # of Unemployed
• Unemployment Rate = (# of Unemployed/Labour Force) X 100
• Labour-Force Participation Rate = (Labour Force/Adult Population) X 100
Does the Unemployment Rate Measure What We Want It To?
• Discouraged Searchers: people who want to work but have given up on looking for a job
Why Are There Always Some People Unemployed?
• Natural Rate of Unemployment: rate of unemployment the economy tends to return to in the
• Employment rate differs from natural rate due to Cyclical Unemployment: departure of
unemployment from its natural rate, arises due to SR econo