Unit 2 Long-run economic performance : The Real Side
1. The production function describes the relationship between the inputs used in production and the quantity of output from production: Y = A F (L, K, H, N). In general, the more other inputs are employed, the more productive is input; and the more an input is employed, the less productive is the same input.
2. Labour productivity is higher if more physical capital (K ), more human capital (H), more natural resources (N) and higher technological levels (A) are employed and less workers (L) are employed.
3. Growth accounting is the exercise of measuring exactly how much of a contribution each of the productive inputs and technology makes to the increase in output.
4. Policies to enhance physical capital and human capital, to facilitate technological progress, to limit labour to an optimal amount, to enforce private property rights, to maintain political stability and to maintain an open economy and facilitate free trade help promote economic growth.
5. In a closed economy, Y = C + I + G. National saving or saving, S, is defined as: S º Y − (C + G). It can be shown that for a closed economy, S = (Y − C − T) + (T − G), or, saving is just the sum of private saving and public saving.
6. When (T − G) is positive, there is a budget surplus. When (T − G) is negative, there is a budget deficit.
7. When the supply curve of loanable funds shifts outwards, the equilibrium interest rate decreases and the equilibrium quantity increases. When the demand curve shifts outwards, the equilibrium interest rate increases and the equilibrium quantity increases.
8. When G increases or T decreases, the interest rate increases and private investment decreases. That is, there is a crowding out of private investment.
9. The financial system consists of those institutions in the economy that help to match one person’s saving with another person’s investment. Financial markets are the institutions through which a person who wants to save can directly supply funds to a person who wants to borrow. Financial intermediaries are financial institutions through which savers can indirectly provide funds to borrowers.
10. People can be classified into three categories according to their employment status " employed, unemployed and not in the labour force.
11. Only when someone wants to find a job but fails to find one should that person be counted as unemployed.
12. The labour force (L) consists of employed people and unemployed people: E + U = L.
13. The unemployment rate (u) is defined as the ratio of unemployed people to the labour force; u = U/L = U/(E + U).
14. The labour force participation rate (LFPR) is defined as the ratio of the size of the labour force to the size of the population: LFPR = L/P = (E + U)/P.
15. Unemployment in most economies (including Malaysia) is usually short-term, i.e., it lasts for less than six months.
16. Frictional unemployment results because it takes time for workers to search for the jobs that best match their tastes and skills. Structural unemployment is long-term and chronic and arises from the imbalances between skills and other characteristics of workers in some part of the labour market and the needs of employers. Structural unemployment is an equilibrium phenomenon.
17. Job matching, demand shifts from some firms to others and sectoral shifts contribute to frictional unemployment.
18. Public policy that improves the information flow in the labour market can reduce frictional unemployment. Specifically, government might improve the services of government-run employment agencies/programmes to facilitate a more efficient job matching of job seekers and potential employers, and launch job-training programmes that enable workers to adjust and acquire job skills to shift to other professions/positions.
19. Unemployment insurance reduces job search efforts and increases the duration of unemployment. However, without other supporting programmes, the absence of unemployment insurance might not force unemployed people to increase search efforts; it might simply make their lives very miserable.
20. According to the “standard analysis”, when the minimum wage level is set above the equilibrium one, there is unemployment. Minimum wage legislation is inefficient and unfair in the sense that some low-wage workers are helped at the expense of others.
21. According to the “standard analysis”, unions serve as a cartel and bargain through a process known as collective bargaining for their union members with employers on issues such as the wage level, fringe benefits and working conditions. The resulting employment level is lower than the competitive one. The insiders (i.e., those union members who are employed) benefit from the high wage and the outsiders (i.e., those union members who are unemployed and non-union members) are hurt. There is unemployment at the high wage level. Unions and collective bargaining are often seen as inefficient and unfair.
22. According to the efficiency theory, the unobserved worker input leads all employers to pay a high wage and hire a less-than competitive level of workers so that there is unemployment. The possibility of workers being unemployed for a while if caught shirking makes workers choose not to shirk.
23. The unemployment rate is the natural rate of unemployment if unemployment consists only of frictional and structural unemployment. The difference between the actual rate of unemployment and the natural rate is known as cyclical unemployment.
No comments:
Post a Comment