Unemployment

HideShow resource information
Phillips curve define
Used to show the inverse relationship between infaltion and unemployment
1 of 25
Keynesians argue
that if there is spare capacity, an incresae in AD causes real GDP to rise therefore uneployment falls but there is a trade off of higher inflation
2 of 25
Evidence
Keynesians argue that the evidence of the 1950s and 1960s suggests that there was a trade off between unemployment and inflation
3 of 25
Monetarists View of the phillips curve
In the LR the AS curve is inelastic and therefore increase in AD will only lead to infaltion in the LR
4 of 25
If there is an increase AD
Firms will increase wages to encourage more workers to supply their labour, workers believe they have a higher real wage and are willing to supply more labour
5 of 25
This increase in the supply of labour leads to
an increase in output and therefore a temporary fall in unemployment- therefore there will be a movement along the SR Phillips curve
6 of 25
However workers later realise that inflation has increased
They re-adjust their expectaions of inflation and realise the increase in wages is only nominal therefore don't supply more labour and output returns to LR equalibrium
7 of 25
Keynesian Vs Monetarist-1
Monetarists point to 1970s where a breakdown in the phillips curve occured- the Uk experienced stagflation which is a period of rising unemployment and inflation
8 of 25
Keynesian Vs Monetarist- 2
Keynesians would respond by arguing that the Phillips curve had merely shifted to the right because of a rise in structral unemployment inflation (in 1970s there was an increase in cost push inflation due to rising oil prices and powerful trade union
9 of 25
Keynesian Vs Monetarist- 3
Between 1992 and 2007, there was a fall in both inflation and unemployment but at times 2008-2010, there was rising unemployment and rising cost push inflation
10 of 25
Natural Rate of Unemployment define
The rate of unemployment when the labour market is in equalibrium, the difference between those who would like a job at the current wage rate and those who are willing and able to take a job
11 of 25
Natural Rate of Unemployment Explain
Includes frictional and structural unemployment, it is unemployment caused by supply side factors rather than demand side factors
12 of 25
Monetarists argue
That the Natural Rate of Unemployment occurs when the LR phillips curve crosses the x axis
13 of 25
Natural Rate of Unemplyment is sometimes known as
Non-accelerating inflation rate of unemployment NAIRU
14 of 25
Often known as
Full employment level of unemployment because even if the economy is operating at full capacity and there is no demand deficient unrmployment then there will still be some unemployment caused by supply side factors
15 of 25
What determinds the Natural Rate of Unemployment-1
Avaliability of job information
16 of 25
What determinds the Natural Rate of Unemployment-2
Quality of job education and retraining schemes
17 of 25
What determinds the Natural Rate of Unemployment-3
Degree of labour flexability
18 of 25
What determinds the Natural Rate of Unemployment-4
Flexability of labour market eg powerful trade unions may be able to restrict supply of labour to certain labour markets
19 of 25
What determinds the Natural Rate of Unemployment-5
Hysteresis, a rise in unemployment caused by a recession may cause the natural rate of unemployment to increase because when workers are unemployed for a time period they become deskilled and demotivated
20 of 25
It has been agued that the UK has seen a fall in the natural rate of unemployment since the 1980s, explained by:
1)increased labour flexabilities (trade unions), 2)Privatisation increasing competitiveness leading to more flexaby labour markets, 3)better education and training 4)recent changes to benfits make it harder to stay on JSA
21 of 25
The rest of the EU has seen a rise in the natural rate of unemployment due to: 1
1)Rigidity in EU labuor markets eg min wages, 2)Restrictions on closing factories, makes firms more reluctant to set them up 3) high degrees of unionisation resulting in wage rigidity
22 of 25
The rest of the EU has seen a rise in the natural rate of unemployment due to: 2
4) Generous benefits which lessen the pain of unemployment and reduce incentive to take job 5)Hysteresis effects , Long periods of unemployment especially amongst the youth have had long lasting effects in discouraging people apllying for jobs
23 of 25
The rest of the EU has seen a rise in the natural rate of unemployment due to: 3
6) Growing competition from Asian countries
24 of 25
HOOK
The rising unemployment may not just be due to the Natural rate increasing but also due to below trend economic growth, therefore part of the unemployment could be cyclical
25 of 25

Other cards in this set

Card 2

Front

Keynesians argue

Back

that if there is spare capacity, an incresae in AD causes real GDP to rise therefore uneployment falls but there is a trade off of higher inflation

Card 3

Front

Evidence

Back

Preview of the front of card 3

Card 4

Front

Monetarists View of the phillips curve

Back

Preview of the front of card 4

Card 5

Front

If there is an increase AD

Back

Preview of the front of card 5
View more cards

Comments

No comments have yet been made

Similar Economics resources:

See all Economics resources »See all Unemployment resources »