Lesson 25 AGGREGATE SUPPLY
I. Read and memorize the following words, word- combinations and word-groups:
aggregate supply — сукупна пропозиція
e.g. We begin our analysis of macroeconomic fluctuations by examining the determinants of potential real output and aggregate supply.
potential real output — потенційне реальне виробництво e.g. Potential real output is determined by the natural resources available to an economy, the technologies that it has developed or acquired, the amount of capital that it has accumulated, and the amount of labor it has available.
to fully employ labor resources — повною мірою вико
ристовувати трудові ресурси
e.g. Labor resources are fully employed when there is an
equilibrium in each labor market.
the real wage — реальна заробітна плата
e.g. The real wage is the purchasing power of the wage payment, which is in turn the amount of money paid to workers per hour, week, or month of work. equilibrium in the labor market — рівновага на ринку
праці
e.g. Equilibrium in the labor market, as in any market,
occurs when the amount willingly supplied is equal to the amount willingly demanded, unemployment — безробіття
e.g. Unemployment occurs, because the real wage does not quickly adjust to a new equilibrium when the demand or supply of labor changes.
true unemployment — реальне безробіття
e.g. Another part of unemployment is true unemploy
ment — there are no job openings corresponding to those who are without work.
cycle unemployment — циклічне безробіття
e.g. The lack of jobs is a consequence of the business
cycle unemployment.
structural unemployment — структурне безробіття
e.g. The lack of jobs may also correspond to a problem with skills and training (structural unemployment).
frictional unemployment — фрикційне безробіття
e.g. Frictional unemployment results when individuals leaving one job (or looking for a first job) do not immediately find a new job, even though there are vacancies in the economy, recession — спад виробництва
e.g. A recession wilt be accompanied by declining prices and nominal wages, but the economy will eventually tend toward full employment and the production of potential real
output.
II Give English equivalents of the following:
супроводжуватися зниженням цін рівновага на ринку праці та номінальної плати відповідна вакансія
повною мірою використовувати виробнича потужність трудові ресурси спад виробництва
здібності, що відповідають певній шукати роботу роботі
потенційне реальне виробництво
III. Fill in the blanks with appropriate words:
| 1. If these productive ... are fully and efficiently employed, there is a ... amount that the economy can produce. 2. Frictional unemployment ... when individuals leaving one job (or looking for a first one) do not immediately find a new job, even though there are vacancies in the economy. 3. ... a job does not solve this unemployment problem this is ... . 4. Published unemployment data will the true unemployment rate because discouraged workers will have quit looking for jobs out of frustration. 5. As real wages fall, firms will increase their employment of workers and real output will... . 6. A recession will be accompanied by ... prices and nominal wages. | underestimate no corresponding vacancy looking for declining maximum increase inputs results |
IV. Read and translate the text:
We begin our analysis of macroeconomic fluctuations by examining the determinants of potential real output and aggregate supply. This potential real output is determined by
the natural resources available to an economy, the technologies that it has developed or acquired, the amount of capital that it has accumulated, and the amount of labor it has available. II these productive inputs are fully and efficiently employed, there Is a maximum amount that the economy can produce — its production possibilities.
Potential real output is the output that would be produced if all resources, including labor, were fully employed. Labor resources are fully employed when there is an equilibrium in each labor market. That is, when everyone who wants to work at the prevailing wage is able to work, labor is fully employed.
Full employment is associated with the amount of labor firms want to employ — labor demand — and the amount of time that individuals want to supply to the market, given the other uses to which these individuals can put their time — labor supply.
The real wage fs the purchasing power of the wage payment, which is in turn the amount of money paid to workers per hour, week, or month of work.
Equilibrium in the labor market, as in any market, occurs when the amount willingly supplied is equal to the amount willingly demanded, that is, when the number of persons willing to work at a particular real wage is exactly equal to the
number of persons that firms want to employ.
Unemployment occurs, because the real wage does not quickly adjust to a new equilibrium when the demand or supply of labor changes.
Frictional unemployment results when individuals leaving one job (or looking for a first job) do not immediately find a new job, even though there are vacancies in the economy.
Not all unemployment is frictional, however. Another part of unemployment is true unemployment — there are no job openings corresponding to those who are without work.
Looking for a job does not solve this unemployment problem — there is no corresponding vacancy. Sometimes the lack of jobs is a consequence of the business cycle unemployment, but the lack of jobs may also correspond to a problem with skills and training (structural unemployment). For example, someone who doesn't have a high-school education may be willing to work but will probably have fewer job-related skills and thus fewer employment opportunities.
Published unemployment data will underestimate the true unemployment rate because discouraged workers will have quit looking for jobs out of frustration.
When labor is unemployed, however, nominal wages wifi eventually begin to decline. As they do, real wages wiil fall. As real wages fall, firms will increase their employment of workers and real output will increase- Thus a recession will be accompanied by declining prices and nominal wages, but the economy will eventually tend toward full employment and the production of potential real output (pp. 464—486)\
V. Answer the following questions:
1. What is frictional unemployment?
2 Js it possible to eliminate frictional unemployment?
3. If the population in a country increases at a moderate rate through time, what will happen to potential real output?
4- To what extent is unemployment «voluntary»?
5. Why should a market economy move toward full employment in the longrun?
6. 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
V1L Translate into English:
1. Якщо реальна заробітна плата зростає, то кількість людей, бажаючих працювати, також зростає. 2. Будь-яка рівновага на ринку лраці відповідатиме повній зайнятості.
3. Податкова політика, яка має вплив на ринок праці, впливатиме також на потенційне реальне виробництво. 4. Коли ринок праці перебуває у стані рівноваги, тоді реальне ви
робництво та потенційне реальне виробництво збігаються.
5. При безробітті реальне виробництво буде меншим, ніж потенційне реальне виробництво. 6. Спад виробництва супроводжується зниженням номінальної заробітної плати.
7. Потенційне реальне виробництво визначається реальними економічними ресурсами.
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.
В.: Why should nominal wages be sticky?
AOne answer is that nominal wages might be sticky because firms and indivlluals 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.
В.: 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 levelr then individuals may have expectations about what is happening to the real wages that differ from firms.
S.: 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 weekf 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 relaiive-price changes that occur in response to changes in market supply and market demand.
B.: 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.
S.: Yes, I agree with you. It is difficult to know whether, on average, the price level 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.
AYou're welcome.
IX. Make up your own dialogue using the following
| equilibrium in the labor market to decline to be accompanied purchasing power recession | to increase full employment unemployment nominal wages |
expressions:
X. Replace the attributive clauses by the Infinitive:
M o d e l : This is the real wage which must be paid to workers per hour, week, or month of work.
This is the real wage to be paid to workers per hour, week or month of work.
1. These are macroeconomic fluctuations which will be examined by experts. 2. The question of full employment which will be discussed later is rather difficult- 3. This is potential real output which must be determined by the natural resources available to an economy, 4. The data about unemployment which must be obtained are of great importance- 5. This is recession which will be accompanied by declining prices and
nominal wages.
XI. Make sentences with seem and appear according to the model:
M o d e l : Are they discussing equilibrium in the labor market?
They seen? to be discussing equilibrium in the labor market.
1. Does the lack of jobs affect unemployment? It seems
2. Have they received their wages? They seem . . . . 3. Has he lost his job recently? He appears . . . . 4. Are they discussing the problem of full' employment? They seem ... . 5. Is he looking for a job now? He appears ... .
XII. Translate into English:
1. Вони хотіли, щоб їм докладно розповіли про проблеми безробіття в західних країнах. 2. Це цікаве питання, яке слід обговорити на зборах. 3. Він першим отримав заробітну плату у відділі. 4. Він пояснить вам, як повною мірою використати трудові ресурси, 5. Вони хотіли, щоб їм пояснили
різницю між реальною та номінальною заробітною пла
тою.
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XIII.Communicative situations:
1. Economises have suggested that the frictional rate of employment has increased during the past two decades. Why might this have occurred?
2. Would the costs associated with unemployment be the same for a teenager as for a head of a household?
Do the unemployment statistics treat these two persons differently? Should they?
3. What does the equilibrium in the labor market depend on? Why?