increase in economic growth has no bearing on seasonal unemployment...ppl arnt going to go to perisher to skii in summer evn if they are millionaires...hmm i dont think in such a question they could accept both seeing they are opposites but yeahh weird mc...for a short answer i think its a really good question but for mc it can be reasoned out either way
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Question 7 (2 Viewers)
- Thread starter Terlob
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No-one is saying that the NAIRU decreases. IT is just that the unemployment rate falls below the NAIRU temporarily.runnable said:
Yes, it IS possible in the short run for e < NAIRU.
However, it causes inflation [re-think what NAIRU stands for].
Take it from me, an economics major at USyd & former tutor at Leading Edge, the answer is C.
In fact search up NAIRU on Wiki and you'll find your answer.
but economics is a theoretical based subject, and unemployment rate can go below nairu only through structural, long-term, seasonal or frictional unemployment reducing, explain how unemployment rate decreases?
cyclical unemployment = 0 (theoretical)
cyclical unemployment = 0 (theoretical)
I think many of you are confused and are thinking along the lines of:
"If the natural rate includes only structural and frictional, how can unemployment fall below this?"
This comes from a basic misunderstanding, which arises when the textbook says that:
"the NAIRU is when cyclical = 0, and there is only structural, frictional".
This is true.
But what is also true is that when unemployment falls below the NAIRU, there is still only structural and frictional unemployment, but the amount of structural and frictional unemployment is lower than what it was at the NAIRU.
This is because there is a sort of 'negative cyclical unemployment' which eats into the structural component.
However, the important thing is that this level is not sustainable vis-a-via output and inflation. And thus in the medium run, unemployment will rise to/above the NAIRU.
The theory is outside the course of the HSC course.
You all seem to be misled by the definition of the NAIRU.
Just accept that u can fall below u* in the short run.
"If the natural rate includes only structural and frictional, how can unemployment fall below this?"
This comes from a basic misunderstanding, which arises when the textbook says that:
"the NAIRU is when cyclical = 0, and there is only structural, frictional".
This is true.
But what is also true is that when unemployment falls below the NAIRU, there is still only structural and frictional unemployment, but the amount of structural and frictional unemployment is lower than what it was at the NAIRU.
This is because there is a sort of 'negative cyclical unemployment' which eats into the structural component.
However, the important thing is that this level is not sustainable vis-a-via output and inflation. And thus in the medium run, unemployment will rise to/above the NAIRU.
The theory is outside the course of the HSC course.
You all seem to be misled by the definition of the NAIRU.
Just accept that u can fall below u* in the short run.
that would be teh correct answer becasue in the textbook it says (quote Dixon 2006 Edition Page 164): "any stimulus to aggregate demand will not permanently decrease unemployment...it will only lead to higher inflation as wages growth accelerates"BackCountrySnow said:
but it could temporarily (in a hypothetical scenario) reduce unemployment INITIALLY. so correct answer would be C?
mimi123456
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Yeah i reckon it's A
hidden unemployment is never counted in uneployment stats, hence runnable's argument that these people will begin actively seeking work thus bringing up unemployment. underemployment is employment nonetheless - so long as you work 1 hour a week you are employed.Garygaz said:
runnable, i think your argument is correct, but for a medium term sort of effect - not initially.
the fact that you state that the NAIRU for aust. has been miscalculated shows how its not a concrete barrier that is obvious to find and impossible to penetrate.
ok, i accept that economics is theoretical thus if the NAIRU was theoretically calculated correctly, then there would be 0 cyclic unemployment. however those that are structuraly unemployed may be employed in the interim, inflation will spiral, but then the unemployment rate would increase back to over the NAIRU.
i think we can all agree it was a silly m/c qn and the real theoretical answer is no change to unemployment and prices increase.
i like the way you cleverly dodged my whole quote and only addressed my final statement. so here is the rest of the quote again.runnable said:
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howabout YOU read up on page 171, the page you tell us to have a look at.
"Once the natural rate is reached, any further cuts in wages or stimulus to aggregate demand will not lead to permanent reductions in the rate of unemployment".
Tim Riley:
"thenatural rate of unemployment is also referred to as the NAIRU as it is at that level of unemployment in the labour market that remains if inflation is not increasing or accelerating in the economy".
ie - its not a concrete barrier that cannot be penetrated. its just that if unemployment DOES go under the NAIRU (and it CAN), the result is high inflation. also, its just for the short term as unemployment would quickly increase back above the NAIRU.
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I was NOT referring to underemployment. I was referring to HIDDEN unemployment.shakky15 said:
For everyone else, read up on Causes of Unemployment, Rising participation rate. Unemployment will INITIALLY rise because discouraged job seekers enter the workforce but this is very initially because they would get a job after some time looking for it.
ITA with runnable. I think it has got to be A. But we'll see once the answers come out. 
Theoretically, when the economy reaches the NAIRU we are usually in a boom period and that brings out discouraged workers who are then consequently added to the unemployment statistics. But it was a dumb mc question.
Theoretically, when the economy reaches the NAIRU we are usually in a boom period and that brings out discouraged workers who are then consequently added to the unemployment statistics. But it was a dumb mc question.Think back to the NAIRU we've learnt. The golden rule was that there is not cyclical unemployment and cannot be reduced through growth. As if the BOS will give us a question saying that unemployment can be reduced. What brought Philips Curve or short/long term curves or rates into this, those are nonsense and obviously not what the question was asking for. Check the syllabus or something.
I say again.
I was NOT referring to underemployment. I was referring to HIDDEN unemployment.
For everyone else, read up on Causes of Unemployment, Rising participation rate. Unemployment will INITIALLY rise because discouraged job seekers enter the workforce but this is very initially because they would get a job after some time looking for it.
I say again.
I was NOT referring to underemployment. I was referring to HIDDEN unemployment.
For everyone else, read up on Causes of Unemployment, Rising participation rate. Unemployment will INITIALLY rise because discouraged job seekers enter the workforce but this is very initially because they would get a job after some time looking for it.
Garygaz
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I agree with you, though I think it will be a 50/50 chance that the BOS made it a or c, or maybe someone will pre-emptively complain and it will end up being one of those questions where both a and c are accepted.runnable said: