Question

1. Explain each different types of unemployment.

2. What are the effects of minimum wage on labor market (both labor demand and labor supply)?

3. Explain the relationship between inflation and unemployment through the Phillips Curve.

Answer 1

1. There are four main types of unemployment in an economy—frictional, structural, cyclical, and seasonal—and each has a different cause.
2. If the minimum wage rate increases, employers will want to hire fewer employees. The quantity of labor demanded will decrease, and there will be a movement upward along the demand curve. If the wages and salaries decrease, employers are more likely to hire a greater number of workers.
3. The Phillips curve shows the relationship between inflation and unemployment. In the short-run, inflation and unemployment are inversely related; as one quantity increases, the other decreases. In the long-run, there is no trade-off. In the 1960's, economists believed that the short-run Phillips curve was stable.