Chapter 23 - Unemployment and Inflation

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factors that change the natural rate of unemployment

- changes in labor force statistics - changes in labor market institutions - changes in government policies

factors that change the rate of structural unemployment

- minimum wages - labor unions - efficiency wages - side effects of government policies - mismatches between employees and employers

unit-of-account costs

arise from the way inflation makes money a less reliable unit of measurement

underemployed

the number of people who work part time because they cannot find full-time jobs

unemployment rate

the percentage of the total number of people in the labor force who are unemployed

interest rate

the price, calculated as a percentage of the amount borrowed, that a lender charges a borrower for the use of their savings for one year

disinflation

the process of bringing inflation down

menu cost

the real cost of changing a listed price

labor force

the sum of employment and unemployment - of people currently working and people currently looking for work

employment

the total number of people currently employed, either full time or part time; excludes retirement and disability

unemployment

the total number of people who are actively looking for work but aren't currently employed

real wage

the wage rate divided by the price level

frictional unemployment

unemployment due to the time workers spend in job search

natural rate of unemployment

unemployment rate that arises from the effects of frictional plus structural unemployment - normal rate to which the actual unemployment rate fluctuates

structural unemployment

unemployment that results when there are more people seeking jobs in a particular labor market than there are jobs available at the current wage rate.

real interest rate

the nominal interest rate minus the rate of inflation

inflation rate

Price Index in year 2 - Price Index in year 1 / Price Index in year 1 x 100

jobless recovery

a period in which the real GDP growth rate is positive but the unemployment rate is still rising

normal unemployment =

frictional unemployment + structural unemployment

real income

incomes divided by the price level

shoe-leather costs

increased costs of transactions caused by inflation

labor force participation rate

labor force/population age 16 and over x 100

actual unemployment

natural unemployment + cyclical unemployment

discouraged workers

nonworking people who are capable of working but have given up looking for a job given the state of the job market

unemployment rate =

number of unemployed workers / labor force x 100

cyclical unemployment

the deviation of the actual rate of unemployment from the natural rate due to downturns in the business cycle.

nominal interest rate

the interest rate expressed in dollar terms

efficiency wages

wages that employers set above the equilibrium wage rate as an incentive for their workers to perform better.

job search

workers who spend time looking for employment

marginally attached workers

would like to be employed and have looked for a job in the recent past but are not currently looking for work


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