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Questions and Answers
What is a primary cause of structural unemployment?
What type of unemployment is caused by job search or transition?
What is the primary purpose of unemployment benefits?
What is the definition of youth unemployment?
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What is an example of a demographic factor that contributes to unemployment?
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What is the duration of unemployment benefits?
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What is the primary objective of a central bank's monetary policy?
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Which of the following is a tool used by central banks to implement monetary policy?
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What is the main function of commercial banks?
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What is the primary role of a central bank?
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Which type of banking involves serving large corporations and businesses?
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What is the purpose of reserve requirements set by a central bank?
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What is the primary purpose of central bank independence?
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What is the primary function of commercial banks?
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What do financial institutions achieve through maturity transformation?
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What type of financial institution helps clients raise capital and advises on investments?
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What is a key function of financial institutions, aside from maturity transformation?
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Study Notes
Causes of Unemployment
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Economic Factors:
- Business cycle fluctuations (recessions)
- Seasonal fluctuations (e.g. winter in tourism industry)
- Technological changes (job replacement)
- Globalization (outsourcing)
- Economic restructuring (industry decline)
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Demographic Factors:
- Changes in population growth rate
- Aging population
- Migration and immigration
-
Labor Market Factors:
- Mismatch between job skills and job requirements
- Lack of education and training
- Discrimination
- Minimum wage laws
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Government Policies:
- Monetary policy (high interest rates)
- Fiscal policy (taxation and government spending)
- Trade policies (tariffs and trade agreements)
Types of Unemployment
- Frictional Unemployment: temporary unemployment due to job search or transition
- Structural Unemployment: mismatch between job skills and job requirements
- Cyclical Unemployment: unemployment due to business cycle fluctuations
- Seasonal Unemployment: unemployment due to seasonal fluctuations
- Long-term Unemployment: unemployment lasting more than 6 months
- Hidden Unemployment: discouraged workers, underemployment, and marginal attachment to the labor force
Unemployment Benefits
- Purpose: to provide financial support to unemployed individuals while they look for new employment
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Types of Benefits:
- Unemployment insurance
- Jobseeker's allowance
- Employment services
- Eligibility: typically requires recent employment, job search, and availability for work
- Duration: varies by country, typically ranging from several months to a year or more
Youth Unemployment
- Definition: unemployment among individuals aged 15-24
-
Causes:
- Lack of education and skills
- Limited job experience
- Discrimination
- Economic factors (e.g. recession)
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Consequences:
- Long-term effects on future employment and earnings
- Social and psychological impacts
- Increased risk of poverty and crime
Unemployment Rate
- Definition: percentage of labor force that is currently unemployed
- Calculation: (number of unemployed / labor force) x 100
-
Types of Unemployment Rates:
- U-1: percentage of labor force unemployed for 15 weeks or more
- U-2: percentage of labor force unemployed for 5 weeks or more
- U-3: percentage of labor force unemployed for 1 week or more
- Importance: indicator of economic health and labor market conditions
Causes of Unemployment
- Business cycle fluctuations, such as recessions, contribute to unemployment
- Seasonal fluctuations, like winter in the tourism industry, lead to unemployment
- Technological changes replace jobs, causing unemployment
- Globalization results in outsourcing, leading to unemployment
- Economic restructuring leads to industry decline, causing unemployment
- Changes in population growth rate affect unemployment
- An aging population impacts unemployment
- Migration and immigration influence unemployment
- Mismatch between job skills and job requirements leads to unemployment
- Lack of education and training contributes to unemployment
- Discrimination is a factor in unemployment
- Minimum wage laws can affect unemployment
- Monetary policy, including high interest rates, affects unemployment
- Fiscal policy, including taxation and government spending, affects unemployment
- Trade policies, including tariffs and trade agreements, impact unemployment
Types of Unemployment
- Frictional unemployment is temporary unemployment due to job search or transition
- Structural unemployment occurs when job skills do not match job requirements
- Cyclical unemployment is caused by business cycle fluctuations
- Seasonal unemployment is caused by seasonal fluctuations
- Long-term unemployment lasts more than 6 months
- Hidden unemployment includes discouraged workers, underemployment, and marginal attachment to the labor force
Unemployment Benefits
- Unemployment benefits provide financial support during job search
- Unemployment insurance and jobseeker's allowance are types of benefits
- Employment services are also provided
- Eligibility typically requires recent employment, job search, and availability for work
- Benefit duration varies by country, ranging from several months to a year or more
Youth Unemployment
- Youth unemployment affects individuals aged 15-24
- Lack of education and skills, limited job experience, and discrimination contribute to youth unemployment
- Economic factors, such as recession, also affect youth unemployment
- Long-term effects on future employment and earnings, social and psychological impacts, and increased risk of poverty and crime are consequences of youth unemployment
Unemployment Rate
- The unemployment rate is the percentage of the labor force that is currently unemployed
- The unemployment rate is calculated by dividing the number of unemployed by the labor force, multiplied by 100
- U-1, U-2, and U-3 are types of unemployment rates, measuring different durations of unemployment
- The unemployment rate is an important indicator of economic health and labor market conditions
Monetary Policy
- Monetary policy is used to promote economic growth, stability, and low inflation.
- It involves regulating the money supply and interest rates.
- Central banks use three tools: Open Market Operations (OMO), Reserve Requirements, and Discount Rate.
- OMO involves buying or selling government securities to increase or decrease the money supply.
- Reserve Requirements set the minimum amount of reserves commercial banks must hold.
- Discount Rate is the interest rate at which central banks lend to commercial banks.
Monetary Policy Objectives
- Central banks aim to achieve three main objectives:
- Price Stability: maintaining a low and stable inflation rate.
- Maximum Employment: promoting job growth and low unemployment.
- Moderate Long-term Interest Rates: maintaining stable and low interest rates.
Commercial Banking
- Commercial banks are financial institutions that provide basic banking services to individuals and businesses.
- They accept deposits, make loans, and provide payment services.
- Retail banking serves individual consumers, while wholesale banking serves businesses and large corporations.
- Investment banking helps clients raise capital and advises on investments.
Central Banking
- Central banks are the primary monetary authority of a country, responsible for regulating the money supply and maintaining financial stability.
- They regulate the money supply, supervise commercial banks, and manage foreign exchange.
- Central banks are often independent to prevent political interference and ensure credible monetary policy.
Financial Institutions
- Financial institutions facilitate the flow of money between savers and borrowers.
- They include commercial banks, investment banks, insurance companies, pension funds, and mutual funds.
- Commercial banks provide basic banking services, while investment banks help clients raise capital and advise on investments.
- Insurance companies provide risk management and protection services.
- Pension funds manage retirement savings and investments.
- Mutual funds pool money to invest in various assets.
Functions of Financial Institutions
- Maturity transformation involves converting short-term deposits into long-term loans.
- Risk transformation involves managing and diversifying risk.
- Liquidity provision involves providing access to cash and credit.
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Description
Test your knowledge of the economic, demographic, and labor market factors that contribute to unemployment. This quiz covers various reasons behind joblessness, including business cycle fluctuations, technological changes, and more.
