ECON - chapter 8
unemployment rate formula
(# of unemployed workers/labor force) x 100
percent change
((present year - previous year)/previous year) * 100
labor force participation rate formula
(labor force/pop age 16+) x 100
result of number of factors like:
*competition for scarce resources *queuing of production for fixed resources *inadequate expectations by firms
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Since 1968, the price level in the United States has __________ and the inflation rate has _______________.
1. risen 2. risen + fallen
when did US inflation rate peak?
1980 and then fell sharply
distribution of the unemployed by duration
<5 weeks = 45% 5-14 weeks = 32% 15-26 weeks = 12% >27 weeks = 11%
True or False? Structural unemployment may be caused by firms paying efficiency wages.
True
can policy errors lead to high inflation?
YES - Israel!
stagflation
a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation)
natural unemployment
frictional unemployment + structural unemployment
natural rate rose in 1970s
more women entering workforce babyboomers turned working age - so more ppl under 25 many were inexperienced
actual unemployment
natural unemployment + cyclical unemployment
real interest rate
nominal interest rate minus rate of inflation
discouraged workers
nonworking ppl who are capable of working but have given up looking for a job given the state of the job market
natural rate of unemployment
normal unemployment rate around which the actual unemployment rate fluctuates *it is the unemployment rate that arises from the effects of frictional plus structural unemployment
employment
number of people currently employed in the economy, either full time or part time
unemployment
number of people who are actively looking for work but aren't currently employed
labor force participation rate
percentage of pop aged 16+ that is in the labor force
labor force participation rate
percentage of the population at least 16 years old that is in the labor force.
unemployment rate
percentage of total number of people in the labor force who are unemployed
due to __________ it was determined that several phillips curves exist
periods of stagflation
disinflation
process of bringing the inflation rate down
side effects of gov policies
public policies designed to help workers who lose their jobs; these policies can lead to structural unemployment as an unintended side effect
unemployment always rose when....
real GDP fell
menu cost
real cost of changing a listed price
unemployment during recessions and expansions
recession: always rises expansion: usually (but not always) falls
unit of acct costs arise from
the way inflation makes money a less reliable unit of measurement
True or False? During the Great Depression from 1929 through 1933, deflation was a big problem.
true
True or False? If an employed person retires and no one is hired to replace him, the unemployment rate will increase.
true
frictional unemployment
unemployment due to the time workers spend in job search
in addition to estimating unemployment rate for the nation as a whole, the U.S. gov also estimates
unemployment rates for each state
structural unempoyment
unemployment that results when there are more ppl seeking jobs in a labor market than there are jobs available at the current wage
real wage
wage rate divided by price level
efficiency wages
wages that employers set above the equilib wage rate as an incentive for better performance
effect of a min wage on the labor market
when the gov sets a min wage, WF, that exceeds the market equilib wage rate, WE, the number of workers, QS, who would like to work at that min wage is greater than the number of workers, QD, demanded at that wage rate *surplus of labor = structural unemployment
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
cyclical unemployment
deviation in the actual rate of unemployment from the natural rate
labor force
equal to the sum of employment and unemployment
underemployment
# of ppl who work part time bc they cannot find full-time jobs
over the past 40 years, what has happened to CPI and inflation rate?
CPI has continuously gone up inflation rate - has both ups and downs
cyclical unemployment
Cyclical unemployment is actual unemployment (9.2%) less the natural rate (4%), which is 5.2%.
union membership has a direct/indirect relationship with natural rate of unemploymet
DIRECT - A reduction in union membership decreases the natural rate of unemployment.
real interest rate
The nominal interest rate less the rate of inflation is the real interest rate.
underemployment
The number of people who work part time but would prefer full-time jobs
Organization for Economic Cooperation and Development (OECD)
association of relatively wealthy countries (Europe, NA, Japan, Korea, NZ, Australia) collects data on unemployment rates in its member nations using the U.S. definition *shows average unemployment *persistently high European employment rates are the result of gov policies, such as high min wages and generous employment benefits, which both discourage employers from offering jobs and discourage workers from accepting jobs, leading to high rates of structural unemployment
unemployment rates of diff groups, 2007
black teens: 31.2% white teens: 14.4% blacks: 7.7% overall: 4.7%
U6
broadest measure of unemployment includes unemployed, discouraged, marginally attached, and underemployed workers.
unions
by bargaining for all a firm's workers collectively (collective bargaining), unions can often win higher wages from employers than the market would have otherwise provided when workers bargained individually
min wages
gov-mandated floor on the price of labor *in the US, the national min wage in 2005 was $5.15 an hour
if prices double, what happens to real income
halves
sources of US versus Them
helps borrowers, hurts lenders hurts those on fixed income rich have more options to avoid inflation
before vs after - inflation and unemployment
high inflation and unemployment in 1971-1984 low inflation and unemployment in 1950-1970
Work by George Akerlof, William Dickens, and George Perry implies that
if inflation is reduced from two to zero percent, unemployment will be permanently increased by 1.5%
real income
income divided by price level
Inflation causes nominal interest rates to
increase
frictionally unemployed
looking for a job even though they have already been offered one
shoe leather costs
increased costs transactions caused by inflation
what are the main concerns of macroeconomic policy?
inflation and unemployment
in 1958, A.W. "Bill" Phillips described an empirical relationship bw
inflation and unemployment *as unemployment decreases, inflation increases
nominal interest rate
interest rate expressed in dollar terms
workers who spend time looking for employment are engaged in
job search
sources of general unrest
shoe leather costs menu costs unit of acct costs
unemployment number is usually quoted as....
someone who has been looking for work during the past 4 weeks *broader measures also count discouraged workers, marginally attached workers, and underemployed
If the minimum wage is set above the market equilibrium wage rate, then:
the government has established a binding price floor with the minimum wage.
The natural rate of unemployment would decrease if
the labor force is older