- •19. Unemployment: types and costs.
- •20. Inflation: classification, causes and effects.
- •Wage price spiral.
- •Expectation of inflation.
- •21. Measurement of national output, unemployment and price level. National income accounting and the real living standard.
- •Net Domestic Product
- •Households or personal disposable income
- •22. Classical economics and the Keynesian revolution: the major areas of disagreement
- •23. Consumption, saving and withdrawals functions in the Keynesian analysis. Injections and their determinants.
- •Important assumptions in the Keynisian analysis
- •1.Savings
- •2.Taxes
- •3.Imports
- •Injections
- •1.Investment
- •24. Determination of national income equilibrium in the Keynesian analysis. The multiplier effect and multiplier coefficient.
- •25. Keynesian explanation of inflation and business fluctuations.
- •26. Fiscal policy: types and effectiveness.
- •27. Money market: demand for money and supply of money. Money multiplier. Equilibrium in the money market. Monetary transmission mechanism.
- •1)Changes in Ms(or demand) will affect y via changes in r.
- •28. Monetary policy: subjects, aims, types, instruments and effectiveness.
- •Instruments of m.P.:
- •Changing exchange rate
- •Important remarks about effectiveness of m.P. Tools:
- •Problems in the short-run
- •2)Problems in the long-run
- •29. Inflation-unemployment theory: the Phillips curve and its development. Phillips curve and explanation of stagflation.
- •2 Parts of curve: elastic and inelastic
- •1)Monetarists contribution
- •In the short-run:
- •2)New classical contribution
19. Unemployment: types and costs.
Rate of unemployment U = (Unemployed people/labour force) * 100%
Natural rate of unemployment – is the rate that takes place when actual output equals potential; is the rate of U that exists when the labor market is in equilibrium. ADL - total demand of labor in the economy at different real wage levels. ASL- total number of people willing & able to work at different real wage levels. Labor Force(N) – is the total number of people who would like employment.
Types of natural U:
frictional-search U is caused by leaving of people their previous jobs and looking for other jobs or by the time of workers to look for a new job (temporary & voluntary U).
Structural(technological & regional) is caused by changes in the composition on structure of demand & supply among industries or regions.
Seasonal (seasonal types of work)
Types of disequilibrium U:
real wage (classical U) is caused by the wage inflexibility or wage rigidity.
Cyclical (demand deficient U) is caused by the fall in AD for labor in the period of recession and inflexibility of wages after the same time. The U caused by the increase in ASL and wage inflexibility.
Causes of wage inflexibility: the min wage law; monopoly power of trade unions; personnel management of firms. OKun’s law – 25% of output for each 1% that the real U rate exists the natural U rate.
20. Inflation: classification, causes and effects.
Wage price spiral.
Direction of demand pull and cost push inflation.
Expectation of inflation.
If people expect inflation to be, it will be.
If people expect inflation, AD rises, Investment rises. So a wage price inflation happens.
Effects
Inflation penalizes, taxes a fixed nominal income receivers.
Inflation : people with fixed income and non-fixed income.
Indixation of income.
Inflation taxes savers.
Ananticipated inflation taxes creditors or lenders and benefits debtors, т.е. borrowers. Less than inflation rate.
Anticipated or expected inflation doesn't influence creditors and debtors if the nominal interest rate moves one for one with the changes in expected inflation rate. A Fisher effect.
An anticipated inflation moves people into higher tax brackets.
As a result the real value of tax payments increases, but real value of disposable income decreases.
National output increases under demand pull inflation and decreases under cost-push inflations.
National output decreases under hyperinflation.
Reasons:
Uncertainty for business decreases investments.
It's impossible for firms to plan forward.
Speculation substitutes production.
Costs effects of inflation.
Inflation increases costs of consumption. Shoeleather costs. - effect of stoptannih bashmakov. Costs are connected with more frequent trip to the bank. People prefer to withdraw small amount of money from the bank, because money bank increases interest rate.
Inflation increases costs of production. Menu costs. Costs connected with price lists, catalogues.
Inflation increases public costs.