Maximum increase inputs results

1. If these productive _______ are fully and efficiently employed, there is a _______ amount that the economy can produce.

2. Frictional unemployment _______ when individuals leaving one job (or looking for a first one) do not immediately find a new job, even though there are vacancies in the economy.

3. _______ a job does not solve this unemployment problem this is _______.

4. Published unemployment data will _______ the true unemployment rate because discouraged workers will have quit looking for jobs out of frustration.

5. As real wages fall, firms will increase their employment of workers and real output will _______.

6. A recession will be accompanied by _______ of prices and nominal wages.

IV. Read and translate the text:

We begin our analysis of macroeconomic fluctuations by examining the determinants of potential real output and aggregate supply. This potential real output is determined by the natural resources available to an economy, the technologies that it has developed or acquired, the amount of capital that it has accumulated, and the amount of labor it has available. If these productive inputs are fully and efficiently employed, there is a maximum amount that the economy can produce – Its production possibilities.

Potential real output is the output that would be produced if all resources, including labor, were fully employed. Labor resources are fully employed when there is an equilibrium in each labor market. That is, when everyone who wants to work at the prevailing wage is able to work, labor is fully employed.

Full employment is associated with the amount of labor firms want to employ – labor demand – and the amount of time that individuals want to supply to the market, given the other uses to which these individuals cat' out their time – labor supply.

The real wage is the purchasing power of the wage payment, which is in turn the amount of money paid to workers per hour, week, or month of work.

Equilibrium in the labor market, as in any market, occurs when the amount willingly supplied is equal to the amount willingly demanded, that is, when the number of persons willing to work at a particular real wage is exactly equal to the number of persons that firms want to employ.

Unemployment occurs, because the real wage does not quickly adjust to a new equilibrium when the demand or supply of labor changes.

Frictional unemployment results when individuals leaving one job (or looking for a first job) do not immediately find a new job, even though there are vacancies in the economy.

Not all unemployment is frictional, however. Another part of unemployment is true unemployment – there are no job openings corresponding to those who are without work. Looking for a job does not solve this unemployment problem – there is no corresponding vacancy. Sometimes the lack of jobs is a consequence of the business cycle unemployment, but the lack of jobs may also correspond to a problem with skills and training (structural unemployment). For example, someone who doesn't have a high-school education may be willing to work but will probably have fewer job-related skills and thus fewer employment opportunities.

Published unemployment data will underestimate the true unemployment rate because discouraged workers will have quit looking for jobs out of frustration.

When labor is unemployed, however, nominal wages will eventually begin to decline. As they do, real wages will fall. As real wages fall, firms will increase their employment of workers and real output will increase. Thus a recession will be accompanied by declining prices and nominal wages, but the economy will eventually tend toward full employment and the production of potential real output.

V. Answer the following questions:

1. What is frictional unemployment?

2. Is it possible to eliminate frictional unemployment?

3. If the population in a country increases at a moderate rate through time, what will happen to potential real output?

4. To what extent is unemployment «voluntary»?

5. Why should a market economy move toward full employment in the long run?

6. What is full employment associated with?

VI. Define the terms:

real wage

recession

true unemployment

cyclical unemployment

structural unemployment

frictional unemployment

nominal wage

aggregate supply

VII. Translate into English:

1. Якщо реальна заробітна плата зростає, то кількість людей, бажаючих працювати, також зростає. 2. Будь-яка рівновага на ринку праці відповідатиме повній зайнятості. 3. Податкова політика, яка має вплив на ринок праці, впливатиме також на потенційне реальне виробництво. 4. Коли ринок праці перебуває у стані рівноваги, тоді реальне виробництво та потенційне реальне виробництво збігаються. 5. При безробітті реальне виробництво буде меншим, ніж потенційне реальне виробництво. 6. Спад виробництва супроводжується зниженням номінальної заробітної плати. 7. Потенційне реальне виробництво визначається реальними економічними ресурсами.

VIII. Read and dramatize the following dialogue:

A.: Unemployment can only result if there is less-than-perfect adjustment of nominal wages to the price level changes. That is unemployment is a consequence of sticky nominal wages. And, if nominal wages are sticky, real output will change when aggregated demand changes.

B.: Why should nominal wages be sticky?

A.: One answer is that nominal wages might be sticky because firms and individuals have different expectations about what is happening to the price level and real wages or because firms and individuals have different abilities to respond to changes in nominal wages.

B.: Why would firms and individuals have different expectations?

A.: If information about the real wages is costly to obtain because individuals must search over different job opportunities and wage offers, simultaneously trying to decide what is happening to the price level, then individuals may have expectations about what is happening to the real wages that differ from firms.

B.: For example, if your expenditures for groceries increased this week how would you determine whether the change was because of a general inflation instead of a change in the relative price of the particular things you bought?

A.: This is not a simple question to answer. Changes in prices in particular markets are relatively easy to observe. But deciding what this means in terms of price-level changes is a much more difficult matter. When you shop one week, chicken will be 1.30 dollar per pound; the next week it could be 0.95 dollar per pound. Week to week, some prices go up, other prices go down. Most of these changes are relative-price changes that occur in response to changes in market supply and market demand.

B.: Sure, but they do not indicate that the price level is going up or down. However, during an inflation, on average, prices will creep up; during a deflation, on average, prices will creep down.

A.: There is no easy way to quickly tell if the price changes that we all observe are relative-price changes, or part of a broader pattern of price changes associated with a price-level change.

B.: Yes, I agree with you. It is difficult to know whether, on average, the price level has gone up or down. Even in periods of inflation when we have become used to price-level changes, it is difficult to know whether the rate of inflation is increasing or decreasing. Thank you for your competent answers.

A.: You're welcome.

IX. Make up your own dialogue using the following expressions:

equilibrium in the labor market to increase

to decline full employment

to be accompanied unemployment

purchasing power nominal wages

recession

X. Replace the attributive clauses by the Infinitive:

Model: This is the real wage which must be paid to workers per hour, week, or month of work. This is the real wage to be paid to workers per hour, week or month of work.

1. These are macroeconomic fluctuations which will be examined by experts. 2. The question of full employment which will be discussed later is rather difficult. 3. This is potential real output which must be determined by the natural resources available to an economy. 4. The data about unemployment which must be obtained are of great importance. 5. This is recession which will be accompanied by declining prices and nominal wages.