Podcast
Questions and Answers
What type of unemployment is primarily caused by factors such as voluntary job changes and information gaps between job seekers and employers?
What type of unemployment is primarily caused by factors such as voluntary job changes and information gaps between job seekers and employers?
Which of the following factors is responsible for cost-push inflation?
Which of the following factors is responsible for cost-push inflation?
Demand-pull inflation occurs when there is an increase in which of the following?
Demand-pull inflation occurs when there is an increase in which of the following?
What type of unemployment can be caused by minimum wage laws and labor unions bargaining for higher wages?
What type of unemployment can be caused by minimum wage laws and labor unions bargaining for higher wages?
Signup and view all the answers
Seasonal unemployment typically varies as a result of which of the following?
Seasonal unemployment typically varies as a result of which of the following?
Signup and view all the answers
What is a primary cause of structural unemployment?
What is a primary cause of structural unemployment?
Signup and view all the answers
During what economic condition can demand-pull inflation arise?
During what economic condition can demand-pull inflation arise?
Signup and view all the answers
What leads to demand deficient unemployment?
What leads to demand deficient unemployment?
Signup and view all the answers
What is the primary characteristic of cost push inflation?
What is the primary characteristic of cost push inflation?
Signup and view all the answers
What does stagflation refer to in an economy?
What does stagflation refer to in an economy?
Signup and view all the answers
Which of the following accurately describes potential GDP?
Which of the following accurately describes potential GDP?
Signup and view all the answers
What is meant by the natural rate of unemployment?
What is meant by the natural rate of unemployment?
Signup and view all the answers
What does the Phillips Curve illustrate regarding inflation and unemployment?
What does the Phillips Curve illustrate regarding inflation and unemployment?
Signup and view all the answers
Which of the following describes disinflation?
Which of the following describes disinflation?
Signup and view all the answers
What is a critical aspect of full employment?
What is a critical aspect of full employment?
Signup and view all the answers
How did inflation trends vary in 2022?
How did inflation trends vary in 2022?
Signup and view all the answers
What does the Short Run Phillips Curve (SRPC) illustrate?
What does the Short Run Phillips Curve (SRPC) illustrate?
Signup and view all the answers
What happens when a country reaches the natural rate of unemployment (NRU)?
What happens when a country reaches the natural rate of unemployment (NRU)?
Signup and view all the answers
What does an inflationary gap indicate?
What does an inflationary gap indicate?
Signup and view all the answers
How does an expansionary fiscal policy affect the Phillips Curve in the long run?
How does an expansionary fiscal policy affect the Phillips Curve in the long run?
Signup and view all the answers
On the AD-AS framework, what results from the movement from point a to point b when AD shifts from AD1 to AD2?
On the AD-AS framework, what results from the movement from point a to point b when AD shifts from AD1 to AD2?
Signup and view all the answers
What does the Long Run Phillips Curve (LRPC) represent?
What does the Long Run Phillips Curve (LRPC) represent?
Signup and view all the answers
What is the significance of the Phillips Curve in relation to business cycles?
What is the significance of the Phillips Curve in relation to business cycles?
Signup and view all the answers
What does an increase in expected inflation lead to on the Phillips Curve?
What does an increase in expected inflation lead to on the Phillips Curve?
Signup and view all the answers
What does the long-run Phillips Curve indicate about the relationship between inflation and unemployment?
What does the long-run Phillips Curve indicate about the relationship between inflation and unemployment?
Signup and view all the answers
What event in the 1970s challenged the traditional Phillips Curve?
What event in the 1970s challenged the traditional Phillips Curve?
Signup and view all the answers
What is the primary assumption of the sticky wage theory?
What is the primary assumption of the sticky wage theory?
Signup and view all the answers
In the context of the New Keynesian Phillips Curve, what does forward-looking behavior imply?
In the context of the New Keynesian Phillips Curve, what does forward-looking behavior imply?
Signup and view all the answers
Which theory assumes that inflation expectations are formed rationally without systematic error?
Which theory assumes that inflation expectations are formed rationally without systematic error?
Signup and view all the answers
What is typically represented by a vertical line on the long-run Phillips Curve?
What is typically represented by a vertical line on the long-run Phillips Curve?
Signup and view all the answers
What does the traditional Phillips Curve suggest about the relationship between inflation and unemployment in the short run?
What does the traditional Phillips Curve suggest about the relationship between inflation and unemployment in the short run?
Signup and view all the answers
What happens in the economy when Aggregate Demand (AD) increases, according to the sticky wage theory?
What happens in the economy when Aggregate Demand (AD) increases, according to the sticky wage theory?
Signup and view all the answers
Study Notes
Lecture 6: Inflation and Unemployment
- Learning Outcomes: Unemployment, Inflation, Phillips Curve
- References: Hubbard and O'Brien Chapters 20 and 28
-
Types of Unemployment and Reasons:
- Frictional: Voluntary job changes, geographical constraints, information gaps, and time to find suitable jobs
- Structural: Automation, globalization, industrial changes, and skill obsolescence that make some workers' skills obsolete
- Real Wage: Minimum wage laws, union bargaining, sticky wages
- Geographical: Regional economic gaps, transportation/infrastructure, housing costs, and social ties that prevent relocation
- Voluntary: Stemming from personal choices or lifestyle preferences that put a higher value on non-economic activities or waiting for better job opportunities
- Seasonal: Weather conditions, agricultural cycles, holiday seasons, tourism trends. Temporary increase/decrease in labour demand.
- Demand Deficient: Various factors that result in decreased aggregate demand
-
Inflation:
- Demand-Pull Inflation: Increased aggregate demand (AD curve shifts right) leads to increased price levels and real GDP
- Cost-Push Inflation: Increased costs (input costs) cause the supply curve (SAS) to shift left, leads to stagflation (fall in real GDP or output accompanied by rising price level). Includes increased wage rates, and raw material prices (such as oil).
-
Inflation Trends Across the World (2022): Datasets include the top 10 lowest and highest inflation rates.
- Specific countries and their inflation rates are listed.
-
Inflation, Disinflation, Deflation:
- Inflation: Sustained increase in the general price level of goods and services
- Disinflation: Decrease in the rate of inflation
- Deflation: Sustained decrease in the general price level of goods and services
-
GDP and Unemployment:
- Potential GDP: Achieved when the economy is at full employment. The maximum output an economy can achieve without generating inflation, assuming full employment and optimal use of resources
- Full Employment: Virtually all individuals willing and able to work at current wage rates are employed. Some degree of unemployment, due to frictional, structural, and seasonal causes, will always exist. The natural rate of unemployment.
-
Phillips Curve:
- Short-Run Phillips Curve (SRPC): Shows an inverse relationship between inflation and unemployment in the short run. Lower unemployment may be associated with higher inflation in the short term.
- Long-Run Phillips Curve (LRPC): Vertical line at the natural rate of unemployment. No trade-off between inflation and unemployment in the long run. The economy will return to its natural rate of unemployment regardless of the inflation rate
- Traditional (A.W. Phillips): Stable, inverse relationship between inflation and unemployment in the short run
- New Keynesian (sticky wage): Prices/wages are slow to adjust, influence of future inflation expectations.
-
Business Cycles and Phillips Curve:
- Inflationary Gap: Higher than full employment output, lower than natural rate of unemployment
- Recessionary Gap: Lower than full employment output, higher than natural rate of unemployment.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
Description
Explore the concepts of inflation and unemployment through Lecture 6, which covers the Phillips Curve and various types of unemployment. Understand factors that contribute to frictional, structural, and seasonal unemployment among others. This quiz references key chapters from Hubbard and O'Brien to deepen your comprehension of economic principles.
