Cracking the AP Economics Macro & Micro Exams by Princeton Review

Author:Princeton Review [Review, The Princeton]
Language: eng
Format: epub
ISBN: 978-0-307-94581-5
Publisher: Random House Information Group
Published: 2012-09-03T16:00:00+00:00

Discouraged workers are those who are willing and able to work, but become so frustrated in their attempts to find work that they stop trying. Because they are not making an effort to find a job at least once every four weeks, discouraged workers are not counted among the unemployed in official statistics, and are a reason why the unemployment rates might understate the true unemployment problem. On the other hand, dishonest workers bias the unemployment figures upward. These individuals claim to be unemployed in order to receive unemployment benefits when, in fact, they do not want a job or are working for cash in an unreported job.

The natural rate of unemployment, about 5 percent in the United States, is the typical rate of unemployment in a normally functioning economy and is often thought of as the sum of frictional and structural unemployment. Full employment is not 100 percent employment, but the level of employment that corresponds with the natural rate of unemployment. With full employment there is no cyclical unemployment.

Some unemployment can be a good thing. Frictional unemployment often allows workers to move into new jobs that are more satisfying for both the worker and the employer than a previous matching. But high rates of unemployment can be devastating, leading to personal loss of self-confidence, crime, the breakup of families, and suicide. There are also losses to output and income. Economists, including the late Arthur Okun, have estimated that for every one percentage point increase in the unemployment rate above the natural rate, output falls by 2 to 3 percentage points. This is called Okun’s law.

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