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Contents
- the percentage of output lost for each 1 point reduction in the inflation rate
Unemployment
Okuns Law: The Relation Between Unemployment and GDP Growth in US Economy
Labour Force
consists of people who respond that they are unemployed as well as those who are employed An unemployed person is defined as one who is out of work and who -has actively looked for work during the previous 4 weeks or, -is waiting to be recalled to a job after having being laid off
Age White Male White Female Black Male Black Female 16-19 14.3 12.8 36.5 28.7 20 and over 3.6 3.7 8.5 8.8
Frictional unemployment exists when the economy is at full employment -same as the natural rate of unemployment
Cyclical unemployment is unemployment in excess of frictional unemployment It occurs when output is below its full-employment level
Unemployment Benefits
Unemployment benefits increase the rate of unemployment in two ways : Unemployment benefits allow longer job search The consequences of being out of jobs are less severe
Total output is below its potential level The economy loses about 2% of output for each 1% that the unemployment rate exceeds the natural rate Distributional impact of unemployment Burden of unemployment
The possibility of unanticipated inflation introduces risk Realized real interest rate are lower than nominal interest rates Inflation redistributes wealth between debtors and creditors
Indexation
Inflation and housing Indexed debt Indexation of wages Supply shocks and wage indexation Why not index?
Hyperinflation
-exceeds 50% per month which is just over 1% per day Price of daily newspaper in Germany (in marks) Jan.1921 May,1922 Oct.1922 Feb.1923 Sept.1923 Oct.1923 Oct.15,1923 Oct.29,1923 Nov.9,1923 Nov.17,1923 0.30 1 8 100 1000 2000 20000 1 million 15 million 70 million
1993-94 2004
25 24 22 20 20 Per 1000 persons
15
14
10
0 Male Female
1993-94
90
89 83
2004
80 70 Per 1000 persons 60 50 40 30 20 10 0 Male 46
45
Female