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V. Answer the following questions:

  1. What is frictions! unemployment?

  2. Is it possible to eliminate frictional unemployment?

  1. If the population in a country increases at a moderate rate through time, what will happen to potential real output?

  1. To what extent is unemployment «voluntary»?

  1. Why should a market economy move toward full employment in the longrun?

  1. What is full employment associated with?

VI. Define the terms:

real wage structural unemployment

recession frictional unemployment

true unemployment nominal wage

cyclical unemployment aggregate supply

VII. Translate into English:

1. SIklu,o peanbHa 3apo6rrHa nnaTa 3pocTae, to KinbKicrb fuoAefi, 6a>KaK3HMx npau,K)BaTM, TaKOK 3pocTae. 2. Eyflb-siKa piBHOBara Ha pMHKy npauj BiflnoBiflaTMMe noBHJh 3aiiH»TOCTi. 3. rioflaiKOBa noniiMKa, nxa Mac BnnuB Ha pmhok npau,i, Brtnu-BaTMMe TaKow Ha noTeHujHHe peanbHe bmpo6hhu,tbo. 4. Konn pHHOK npauj nepe6yBae y CTani pieHOBarn, toaI peanbHe bh-Po6hmutbo ra noTeHniMHe peanbHe bmpo6hmu.tbo 36irafOTbca. 5. ripn 6e3po6iTti peanbHe bmpo6hhhtbo 6yfle MeHWMM, Hi>K noreHUJMHe peanbHe bmpo6hmu,tbo. 6. CnaA Bnpo6HMU,TBa cy-npOBOflwyeTbcsi 3HM>KeHHflM HOMiHanbHoT 3apo6iTHo'f nnaTH.

7. rioTeHuiiiHe peanbHe bmpo6hhu,tbo BM3HaHaeTbcn peanbHM- mm eKOHOMiHHMMM pecypcaMH.

VIII. Read) and dramatize the following dialogue:

A.: Unemployment can only result if there is less-than-perfect« adjustment of nominal wages to the price level changes. That is unemployment is a consequence of sticky nominal wages. And, if nominal wages are sticky, real output will change when aggregate demand changes.

B.: Why should nominal wages be sticky?

A.: One answer is that nominal wages might be sticky because firms and indiviluals have different expectations about what is happening to the price level and real wages or because firms and individuals have different abilities to respond to changes in nominal wages.

B.: Why would firms and individuals have different expec­tations?

A.: If information about the real wages is costly to obtain because individuals must search over different job oppor­tunities and wage offers, simultaneously trying to decide what is happening to the price level, then individuals may have expectations about what is happening to the real wages that differ from firms.

8.; For example, if your expenditures for groceries incre­ased this week how would you determine whether the change was because of a general inflation instead of a change in the relative price of the particular things you bought?

A.: This is not a simple question to answer. Changes in prices in particular markets are relatively easy to observe. But deciding what this means in terms of price-level changes is a much more difficult matter. When you shop one week, chicken will be 1.30 dollar per pound; the next week it could be 0.95 dollar per pound. Week to week, some prices go up, other prices go down. Most of these changes are relative-price changes that occur in response to changes in market supply and market demand.

8.; Sure, but they do not indicate that the price level is going up or down. However, during an inflation, on average, prices will creep up; during a deflation, on average, prices will creep down.

A.: There is no easy way to quickly tell if the price changes that we all observe are relative-price changes, or part of a broader pattern of price changes associated with a price-level change.

8..- Yes, I agree with you. It is difficult to know whether, on average, the price ievel has gone up or down. Even in periods of inflation when we have become used to price-level changes, it is difficult to know whether the rate of inflation is increasing or decreasing. Thank you for your competent answers.

A.: You're welcome.

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