Economic

1. What is the rate of unemployment?

The rate of unemployment is U/L

1. What is the rate of job separation(s)?

S=(fU)/E

1. What is the rate of job finding (f)?

F=(sE)/U  

The fraction of unemployed individuals who find a job each month

1. If the unemployment rate is neither rising nor falling over time (the natural rate of unemployment), what condition must be satisfied?

The labor market is in a steady state—then the number of people finding jobs fU must equal the number of people losing jobs sE (fU=sE)

1. If L=labor force, U=# of unemployed people, E= # of employed people, s=the rate of job separation and f= the rate of job finding, calculate the natural rate of unemployment.

U/L=s/s+f

1. If more people lose their jobs over time, what will happen to the natural rate of unemployment?

The higher the rate of job separation, the higher the unemployment rate

1. If more people find their jobs over time, what will happen to the natural rate of unemployment?

The higher the rate of job finding, the lower the unemployment rate

1. If s=0.01, f=0.2, what is the natural rate of unemployment?

U/L=s/s+f=0.0476

1. What is Okun’s Law?

In recessions, unemployment rises. This (when one rises, the other falls) negative relationship between unemployment and GDP is called Okun’s law

1. What is the major difference between Long Run and Short Run?

The short run and long run differ in terms of the treatment of prices.

1. What are the characteristics of classical macro theory (Long Run Models)?

Prices are flexible and can respond to changes in supply or demand

1. What are the characteristics of Keynesian macro theory (short run models)

In the short run, many prices are “sticky” at some predetermined level

1. What is an aggregate demand?

Aggregate demand (AD) is the relationship between the quantity of output demanded and the aggregate price level.

1. Use the Quantity Equation to derive an aggregate demand curve.

MV=PY --→ M/P = (M/P)^d = kY

Where k = 1/V is a parameter representing how much money people want to hold for every dollar of income. In this form, the quantity equation states that the supply of real money balances M/P equals the demand for real money balances (M/P)d and that the demand is proportional to output Y.