Encore Presentation on Unemployment

Additional types of unemployment  You remember the three types we talked about last time right Rubber Duck Boy?  What are they young man?

Unemployment when we are not at potential GDP  The three types of unemployment we discussed last class all exist even if the economy is at the full employment level of GDP. But what kinds of unemployment exists when we are in a recessionary gap?

Real Wage Unemployment  This type of unemployment occurs when there is a disequilibrium in the labour market. It appears when the actual real wage is greater than the equilibrium real wage giving rise to a labour surplus.  How can this happen Ms. Yeung?

Real Wage Unemployment

Artificially high wage rates leads to a decrease in SRAS

How to fix this problem?  The artificially high wage rates can be reduced if we destroy unions and lower or eliminate minimum wage….but you can’t force firms to pay workers less….but some would argue that SRAS would shift to the right

Economic Cat Fight  During the Great Depression, classical economists argued the high unemployment rate was caused by artificially high wages. Keynes of course, thought they were ignorant

Keynes’ Explanation  Keynes argued that there was insufficient aggregate demand in the economy, caused by pessimistic business expectations which led to a virtual standstill in private investment. When the animal spirits are quiet, so is the economy.

Cyclical Unemployment  Keynes’ argument against real wage unemployment led to the idea of cyclical unemployment, aka demand-deficient unemployment….but some still argue that unemployment is caused by high wages

Cyclical Unemployment  Cyclical Unemployment occurs when the economy is in a recessionary gap caused by a decline in AD. Eliminate the recessionary gap and you eliminate Cyclical Unemployment, leaving just the other three types of unemployment.

Keynesian solution to Cyclical Unemployment

Keynesian solution to Cyclical Unemployment from the Neoclassical side

So what types of unemployment can we have during a recessionary gap BS man?

So what types of unemployment can we have at full employment Head Boy?

What do we know about unemployment if we are in an inflationary gap Mung Lok?

Government Policies  So what can the government do to reduce the natural rate of unemployment?  Express your answer with reference to either the AD, SRAS or LRAS curves.

Government Policies  So what can the government do to reduce real wage unemployment?  Express your answer with reference to either the AD, SRAS or LRAS curves.

Government Policies  So what can the government do to reduce cyclical unemployment?  Express your answer with reference to either the AD, SRAS or LRAS curves.

Lucky people who didn’t get their photos shown

Let’s not forget

Last but not least