Macroeconomics, Unemployment

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Summary of Macroeconomics Lectures for MBA 1st Year, VGSoM, IIT Kharagpur Course coordinator – Dr. Barnali Nag

Lecture #4 (Unemployment)
1. The natural rate of unemployment
definition: the long-run average or “steady state” rate of unemployment depends on the rates of job separation and job finding
2. Frictional unemployment
due to the time it takes to match workers with jobs
may be increased by unemployment insurance
3. Structural unemployment
results from wage rigidity: the real wage remains above the equilibrium level caused by: minimum wage, unions, efficiency wages
4. Duration of unemployment
most spells are short term
but most weeks of unemployment are attributable to a small number of long-term unemployed persons
5. Behavior of the natural rate in the U.S.
rose from 1960 to early 1980s, then fell
possible explanations:
trends in real minimum wage, union membership, prevalence of sectoral shifts, and aging of the Baby Boomers

1

Lecture #5 (Open Economy)
1. Net exports—


the difference between exports and imports
a country’s output (Y )
and its spending (C + I + G)

2. Net capital outflow equals
purchases of foreign assets minus foreign purchases of the country’s assets the difference between saving and investment
3. National income accounts identity implies:
Y = C + I + G + NX
trade balance NX = S - I net capital outflow
4. Impact of policies on NX :
NX increases if policy causes S to rise or I to fall
NX does not change if policy affects neither S nor I. Example: trade policy 5. Exchange rates
nominal: the price of a country’s currency in terms of another country’s currency real: the price of a country’s goods in terms of another country’s goods The real exchange rate equals the nominal rate times the ratio of prices of the two countries.

6. How the real exchange rate is determined
NX depends negatively on the real exchange rate, other things equal

2

The real exchange rate adjusts to equate NX with net...
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