Chapter 9 Econ

Labor force participation rate

(Labor force / Working - age population) x 100

Unemployment rate

(Number of Unemployed / Labor force) x 100

Substitution bias

Calculating the consumer price index for the year, the BLS uses the quantities in the market basket, rather than the quantities purchased during the current year.

structural unemployment

are most likely to result in hardship for the people who are unemployed because this type of unemployment requires retraining to acquire new job skills.

3 types of unemployment are

frictional, structural, and cyclical unemployment

An efficiency wage...

increases the unemployment rate since firms pay a higher-than-market wage that increases the quantity of labor supplied

Real Interest rate

is the nominal interest rate minus the inflation rate

Inflation can affect the distribution of income because....

people with incomes rising faster than the rate of inflation enjoy an increasing purchasing power, while people with incomes rising more slowly than the rate of inflation are hurt by a decreasing purchasing power.

Menu costs

the costs of firms of changing prices. (the internet has reduced the size of menu costs)

Frictionally unemployed

A person who is in between jobs but actively engaged in job search

Consumer Price Index

An average of the price of the goods and services purchased by the typical urban family of four. (Cost of the market basket in the current year / Cost of the market basket in the base year x 100)

During the late nineteenth century in the United States, many farmers borrowed heavily to buy land. During most of the period between 1870 and mid-1890s, the United States experienced mild deflation. Many farmers engaged in political protests during these years, and deflation was often a subject of their protest...

During deflationary periods, the real interest rate exceeds the nominal interest rate, and the real cost of borrowing increases.

cyclically unemployed

Ex: When the economy enters into a recession and that, a person loses his job as a delivery truck mechanic and remains unemployed. When the economy recovers, his previous employer rehires him.

Structurally unemployed

Experts in hand-drawn animation who remain unemployed due to the film industry's switch to computer-generated animation

minimum wage law

Has only a small effect on the unemployment rate since only a small part of the labor force earns the minimum wage

Household survey

Interviews households and measures the unemployment rate

Relationship between frictional unemployment and job search

People are said to be frictionally unemployed when they are between jobs and searching for new jobs

Full employment

The unemployment rate is greater than zero, all remaining unemployment is either frictional or structural, and the natural rate of unemployment prevails.

How would it affect the unemployment rate if the Bureau of Labor statistics counted as unemployed both (1) discouraged workers and (2) people who work part-time but would prefer to work full time?

The unemployment rate would increase

Cyclically unemployed

When a company reduces production and employment during economic recession, and employees lose their jobs

Suppose that the inflation rate turns out to be much higher than most people expected. In that case,

a borrower will gain from the situation while a lender will lose.

Establishment survey

interviews businesses and measures the employment rate. (Many economists like to use this because it is determined by actual payroll records other than unverified answers)

Labor force participating rate

is the percentage of the working age population in the labor force

Nominal interest rate

is the stated interest rate

The chapter explains that it is impossible to know whether a particular nominal interest rate is "high" or "low" because...

it all depends on the inflation rate

Unemployment rate

shows the percentage of the labor force that is considered unemployed

Effect of labor unions on overall unemployment is...

small only a small percentage of the labor force outside the government is unionized.

As output (GDP) is increasing.....

the amount of cyclical unemployment would decrease.

When the economy is at full employment, unemployment is equal to

the natural rate of unemployment

If the economy is experiencing deflation,

the nominal interest rate will be lower than the real interest rate

The natural rate of unemployment is...

the sum of structural unemployment and frictional unemployment