Labor Economics

N.A.I.R.U stands for what?
Non-accelerated rate of unemployment
NAIRU definition
A measure that represents full employment and stable inflation.
Full employment
A state in our economy where additional demand does not create jobs.
The NAIRU is projected by what government agency?
The CBO
CBO NAIRU
Represents the industry’s standard for the unemployment with full employment
Unemployment
The average of the jobless rates across the nation weighted against the relative size of the local workforce.
Unemployment < NAIRU
This means that the labor market is tight.
What happens when labor markets are tight?
Tight labor markets increases the income of all Americans regardless of class. But majority of the benefits disproportionally goes to the lower and middle class of Americans.
In what areas does the lower, middle, and upper class see a percentage increase in? And who gets the bigger increase?
The American Working Class can expect to see a percentage increase in wages, hours and evidently income.

The lower and middle class of America will see the biggest percentage increase in income that the upper class of America.

True or False:
The increase in income that the upper class will see during tight labor markets would be so small that statistically it would be insignificant
True
What are the three types of unemployment?
1) Structural
2) Cyclical
3) Frictional
What is structural unemployment?
Unemployment created due to the fact that the suppliers lack the skill or ability to obtain a job.
In a full economy structural unemployment represents what?
The floor in our pursuit to full employment.
Can an increase in demand decrease structural employment?
No
What are the two ways to spot structural unemployment?
1) Large sectors in which suppliers with the necessary skills come in limited supply and wages are consistently going up.

2) The average work week for the existing workforce is being extended.

Cyclical Unemployment
Unemployment created due to inadequate demand.
True or False:

Stimulating demand will produce jobs.

True
True or False:

The demand in the labor market is strictly linked to our infrastructure.

True. As demand increases so does the health of our infrastructure and vise-versa.
Frictional Unemployment
Unemployment created due to those that are in between jobs.

Unemployment created due to “job leavers”. People who willingly leave their jobs without having another one lined up.

Age-Wage Trajectory
The extent to which earnings increase with age for time to come.
Dynamic Cost
Cost that is due to increase rates in inflation resulting in a decline in the rate of growth in our economy.
Static Cost
Cost due to the continuos distortions in our tax code.
What is the target inflation rate that the Central Banks go for?
2% inflation target.
Alan Greenspan
A federal reserve president.
A study that was conducted during the 1960’s, 70’s, and 80’s on seven developing countries showed what?
That the average inflation rate was well above 2% and actually resulted in positive growth rates for our economy.
Taylor Rule
A monetary policy rule that stipulates how much the central bank can change nominal interest rates in response to inflation, supply shocks, etc.
Can supply shocks affect the correlation between inflation and the growth rate in our economy? If so, how?
Supply shocks can affect the relationship between inflation and the growth rate.
Supply shocks refer to a sudden increase or decrease in the production of a good or service.
A sudden drop in the production of a good or service causes prices for that good or service to up- which is inflation. This will result in a decline in the rate of growth in our economy.
The reverse is true if there was a sudden increase in the supply of a good or service. Prices will decline causing our economy to sustain positive growth rates in our economy.
Conventional Monetary Policy
When the federal reserve lowers the federal funds rate in an attempt to bring down long-term interest rates, which has a direct affect in bringing down our real interest rates.
Unconventional Monetary Policy
When the federal reserve expands or contracts the money supply through quantitative easing or contraction.

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