Unemployment
Unemployment due to a decrease in aggregate demand
Households, firms, government, foreign consumers
What are the participants of aggregate demand?
It is vertical, at natural rate of output and natural rate of unemployment
What is long run aggregate supply curve?
AD curve, short run AS curve and long run AS curve intersect
What is macro equilibrium?
the use of taxation and government spending to influence aggregate demand
What is fiscal policy?
individuals who would like to work but have given up looking for a job.
Who are discouraged workers?
wealth, direct tax, interest rate, expectation of future income
What are the factors for consumption?
discovery of land, larger population, higher education, more capital
What are the factors to increase long run aggregate supply?
Peak, recession, trough, recovery, boom
what is the process of business cycle?
tax rate, and unemployment benefits
What are automatic stabilizer?
workers who are overqualified for the job or want to work more hours
Who are underemployed workers?
hen price goes down, people feel richer. They consume more. Hence total quantity of products demanded increases.
What does wealth effect mean?
When the increase in wage is higher than increase in labor productivity, the cost goes up. Aggregate supply goes down.
How does unit labor cost affect aggregate supply?
When there is a supply shock, unemployment and inflation happen at the same time
What does stagflation mean?
Full employment
What is the goal of fiscal policy?
Surplus caused by minimum wage law and trade union negotiation
What is one of the reasons for structural unemployment?
It equals dissaving in saving function, which does not depend on income level.
What is autonomous spending?
It raises production costs, and is not obtained by producers or consumers
What is indirect tax?
potential output is smaller than actual output
when does inflationary gap happen?
If the government uses tax revenue to cover the spending, tax multiplier will offset some of the effect from spending multiplier
what does balanced budget multiplier mean?
workers between jobs, marginally attached workers, workers who lie about unemployment and workers who are unemployed
What are the reasons for inaccuracy of unemployment rate?
When stock of capital goods become lower, or firms want to expand production, it happens.
When will investment happen?
In the short run, Keynesian assumes nominal wage stays constant.
Why does short run aggregate supply curve upload?
When unemployment rate is smaller than natural rate of unemployment due to an increase in AD, nominal wage increases. Short run AS decreases. Output goes back to natural level of output
What is self—correcting?
To achieve same amount of change in income, goverment has to cut more tax than increasing spending, due to the nature of spending multiplier and tax multiplier
What is the consequence of the fact tax multiplier is smaller than spending multiplier?