GDP2 - Neoclassical Perspective PDF

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Neoclassical Perspective...

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Fi ght i ngUnempl oymentorI nflat i on? Asweexpl ai nedi nUnempl oyment ,economi s t sdi vi deunempl oymenti nt ot wo cat egor i es :c y cl i c alunempl oy mentandt henat ur al r at eofunempl oyment ,whi c hi st he s um off r i ct i onalandst r uc t ur al unempl oy ment .Cy c l i c alunempl oy mentr es ul t sf r om fl uct uat i onsi nt hebusi nesscy c l eandi sc r eat edwhent heeconomyi spr oduci ngbel ow pot ent i al GDP—gi vi ngpot ent i alempl oy er sl essi ncent i v et ohi r e.Whent heeconomyi s pr oduc i ngatpot ent i alGDP,c y c l i calunempl oy mentwi l lbez er o.Bec aus eofl abor mar k etdynami c s,i nwhi c hpeopl ear eal way sent er i ngorex i t i ngt hel aborf or c e,t he unempl oy mentr at enev erf al l st o0%,notev enwhent heeconomyi spr oduci ngator ev ens l i ght l yabov epot ent i al GDP.Pr obabl yt hebestwecanhopef ori sf ort henumber ofj obv acanci est oequalt henumberofj obs eek er s .Weknowt hati tt ak est i mef orj ob s eek er sandempl oy er st ofi ndeac hot her ,andt hi st i mei st hecaus eoff r i c t i onal unempl oy ment .Mos teconomi s t sdonotconsi derf r i ct i onalunempl oy mentt obea“ bad” t hi ng.Af t eral l ,t her ewi l l al way sbewor k er swhoar eunempl oy edwhi l el ooki ngf oraj ob t hati sabet t ermat chf ort hei rsk i l l s .Ther ewi l l al way sbeempl oy er st hathav eanopen posi t i on,whi l el ooki ngf orawor k ert hati sabet t ermat chf ort hej ob.I deal l y ,t hese mat cheshappenqui ckl y ,butev enwhent heeconomyi sv er ys t r ongt her ewi l lbes ome nat ur al unempl oy mentandt hi si swhatt henat ur al r at eofunempl oymentmeas ur es . Theneocl as si c al vi ewofunempl oy mentt endst of oc usat t ent i onawayf r om t hec y c l i cal unempl oy mentpr obl em—t hati s ,unempl oy mentcaus edbyr ecessi on—whi l eput t i ng mor eat t ent i onont heunempl oymentr at ei s suet hatpr ev ai l sev enwhent heeconomyi s oper at i ngatpot ent i al GDP.Toputi tanot herway ,t heneocl as si cal vi ewof unempl oy mentt endst of ocusonhowt hegov er nmentcanadj us tpubl i cpol i c yt or educe t henat ur al r at eofunempl oyment .Suc hpol i c ychangesmi ghti nv ol v er edes i gni ng unempl oy mentandwel f ar epr ogr amssot hatt heys uppor tt hosei nneed,butal s ooffer gr eat erenc our agementf orj obhunt i ng.I tmi ghti nv ol v er edes i gni ngbusi nes sr ul eswi t h aney et owhet hert heyar euni nt ent i onal l ydi sc our agi ngbus i nessesf r om t aki ngonnew empl oy ees .I tmi ghti nv ol v ebui l di ngi nst i t ut i onst oi mpr ov et heflowofi nf or mat i onabout j obsandt hemobi l i t yofwor k er s ,t ohel pbr i ngwor k er sandempl oy er st oget hermor e qui ckl y .Fort hosewor k er swhofindt hatt hei rs ki l l sar eper manent l ynol ongeri ndemand ( f orex ampl e,t hest r uct ur al l yunempl oy ed) ,economi st scandes i gnpol i c yt opr ovi de oppor t uni t i esf orr et r ai ni ngs ot hatt hesewor k er scanr eent ert hel aborf or ceandseek empl oyment . Neocl as si c al economi st swi l l nott endt oseeaggr egat edemandasausef ult ool f or r educi ngunempl oyment ;af t eral l ,wi t hav er t i c alaggr egat es uppl ycur v edet er mi ni ng economi cout put ,t henaggr egat edemandhasnol ongr uneffectonunempl oy ment . I ns t ead,neoc l assi c aleconomi st sbel i ev et hataggr egat edemands houl dbeal l owedt o expandonl yt omat cht hegr adual shi f t sofaggr egat es uppl yt ot her i ght —k eepi ngt he pr i c el ev elmucht hes ameandi nfl at i onar ypr es s ur esl ow....