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What is the difference between structural unemployment & cyclical unemployment and what type of unemployment is best studied within the long-run framework?

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1) What is the difference between structural unemployment and cyclical unemployment?

a) What type of unemployment is best studied within the long-run framework? Why?

b) Does the unemployment rate underestimate or overestimate the unemployment problem? Explain.

c) If unemployment rises by 2 percentage points, what will likely happen to output in the United States?

2) Inflation, on average, makes people neither richer nor poorer. Therefore it has no cost. True or false? Explain.

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1) Structural unemployment occurs when the structure of industry changes. As an economy develops over time the type of industries may well change. This may be because people's tastes have changed or it may be because technology has moved on and the product or service is no longer in demand.

Cyclical Unemployment results from changes in the business cycle. An example of cyclical unemployment is layoffs and cutbacks resulting from a recessionary economic phase. This occurs when individuals suffer job losses due to changes in the economic (business) cycle. Often as growth in economic activity reaches its peak and begins transition to a contraction, employers will begin to curtail production, to avoid additions to accumulating inventories, and thus begin to furlough a fraction of their workforce.
Another type of unemployment is Frictional Unemployment. This represents those individuals that have left one job but are certain to begin their new job within a relatively short period of time. Often this type of unemployment accounts for those in-between jobs and is the result of individuals responding to market forces in the economy.

a) Structural unemployment is the type of unemployment best studied in the long term framework. This is because this type of unemployment represents a change taking place within a certain economy and may suggest changes in ...

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