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ECON 2020 Exam 2 Matthew Hall

Terms in this set (24)

Structural Unemployment
Caused by changes in the industrial makeup of the economy.
- "creative destruction"
- Example: Jobs that have been made obsolete by technology. Out of date jobs.
Frictional unemployment
Caused by time delays in matching available jobs and workers
People do not always want to accept the first job offer
Firms do not always hire the first applicant
Example: recent college grad, spouse of a person who moves for a new job
Cyclical unemployment
Caused by economic downturns
Example: unemployment caused by the great recession
Natural rate of unemployment (u*)
- typical rate of unemployment
Full employment output (Y*)
- output of an economy with no cyclical unemployment
Labor Force
People who are employed or actively seeking work
Who is not in the Labor force?
Jobless people not actively seeking employment (no efforts made in four weeks)
Retirees
Students
Institutionalized
leading indicators vs lagging indicators
leading helps us predict what is coming and usually changes before the economy does while lagging usually changes after the economy as a whole does, not much predictive power.
Labor force participation rate
labor force/eligible working age population x 100
unemployed
labor force - employed = unemployed
Unemployment rate
unemployed/labor force x 100
Price index
basket price/basket price in base year x 100
Price today
= price earlier x (price level today / price level earlier)
nominal wage
the wage in current dollars
real wage
nominal wage adjusted for inflation
if unexpected inflation occurs...
You are better off, bank is worse off
if unexpected deflation occurs...
You are worse off and the bank is better off
Loanable funds "law of supply"
The quantity of savings rises when the interest rate increases
real interest rate
the interest rate corrected for the effects of inflation

nominal interest rate - inflation rate
nominal interest rate
the interest rate before it is corrected for inflation

real interest + inflation rate
Demand of loanable funds
-Comes from people wanting to borrow money
-Interest rate is the cost of borrowing
Changes in income and wealth
-Increases in income generally increase savings
Time preferences
-People generally prefer goods sooner rather than later, and funds are no different
aggregate demand
AD = C + I + G + NX

remember: NX = X - M
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