EC140 Lecture Notes - Lecture 3: Unemployment, Potential Output, Output Gap
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EC140 Full Course Notes
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First model = entirely off expenditure side. Households have money and can do two things think of closed economy (no trade with world) no government (so no taxes: buy things made in canada, save their money (investment) households buy goods, firms investing. Unemployment: not employed and actively searching for a job. Unemployment rate: number of people unemployed divided by the number of people in the labour force. People not looking for work are not in either number. Unemployment rates differ between 3% and 12% in countries. Overwhelmingly deciding factor whether incumbents remain in power after an election. Frictional normal rate of people looking for work important/necessary thing. Structural- people with wrong type of skills. Do(cid:374)"t have skills e(cid:373)ployers are looki(cid:374)g for. Cyclical increase/ decrease in unemployment associated with difference between actual and potential gdp. Companies choose to lay people off/hire more people. Directly related between how much the economy can produce and how much firms want to produce.
