Econ001_Chapter 09 Vocab

Four reasons that explain why flexible-income receivers may be unaffected or benefit by unanticipated inflation?

1. Demand pull inflation may cause some nominal incomes to increase faster than inflation and lead to real income increases 2. Business owner's profits may rise if product prices rise faster than resource prices 3. They receive COLAs 4. Their incomes may automatically increase when the CPI increases

5 reasons that economists cite several possible general sources of shocks that can cause a business cycle:

1. Irregular innovation 2. Productivity changes 3. Monetary factors 4. Political events 5. Financial instability

4 Reasons why teenagers have a much higher unemployment rate than adults:

1. more frequently fired 2. quit for frequently 3. less geographic mobility 4. lower skill levels

How many households does the US Bureau of Labor Statistics survey on determining who was employed or not.

60,000 households

Real income

A measure of the amount of goods and services nominal income can buy; it is the purchasing power of nominal income, or income adjusted for inflation. Real income = (nominal income / price index (in hundredths)

Business Cycles

Alternating rises and declines in the level of economic activity, sometimes over several years. Individual cycles (one "up" and "down") vary substantially in duration and intensity.

Frictional Unemployment

At any given time some workers are "between jobs."

Does unanticipated inflation benefit or harm debtors (borrowers)?

Benefits.

Structural Unemployment

Changes over time in consumer demand and in technology alter the "structure" of the total demand for labor, both occupationally and geographically.

Labor force

Consists of people who are able and willing to work. Both those who are employed and this who are unemployed but actively seeking work are counted as being in the labor force.

Why do Social security payments automatically increase when the CPI goes up?

Cost of living adjustments

Too much spending chasing too few goods is the essence of _____-_____ inflation.

Demand-pull inflation

The official unemployment rate is understated because it does not count what as unemployed?

Discouraged workers

Demand-Pull Inflation

Excess demand bids up the prices of the limited output, which produces demand-pull inflation.

Who is more likely to escape inflation's harm?

Flexible income receivers (as compared to fixed income receivers)

Does unanticipated inflation help or harm creditors?

Harms.

Nominal Interest Rate

Interest rates that are quoted in the market

What happens to savings as prices rises, the real value,or purchasing power deteriorates?

It deteriorates as well.

Full employment is ____ 100 percent employment of the labor force

Less than

Consumer Price Index (CPI)

Main measure of inflation in the United States, compiled by the BLS. CPI= (Price of the most recent market basket in the particular year / Price estimate of the market basket in 1982-1984) x 100 Rate of inflation = Percentage growth of CPI from one year to the next.

Income that is received as wages and is not adjusted for inflation is called:

Nominal income

Real income will remain the same when:

Nominal income rises at the same percentage rate as does the price index

Nominal interest rate (formula)

Nominal interest rate = real interest rate + inflation premium (the expected rate of inflation)

The basic economic cost of unemployment is forgone ____.

Output

Cyclical Unemployment

Typically begins in the recession phase of the business cycle. As the demand for goods and services decreases, employment falls and unemployment rises.

Cost-of-Living-Adjustments (COLAS)

Union workers can receive this when CPI increases, which prevents the erosion of benefits from inflation.

The major source of cost-push inflation is:

supply shocks

Deflation Issues

(Inverse to inflation) -Declines price level (nverse to inflation) -Fixed incomes will find their real incomes enhanced. -Creditors benefit (not the debtors) -Savers' purchasing power is increased

Inflation

A rise in the general level of prices. When inflation occurs, each dollar of income will buy fewer goods and services than before. Inflation reduces the "purchasing power" of money.

When prices are sticky in the short-tun, the economy is forced to respond by changes in:

Employing and output

Demand-Pull Inflation is caused by:

Excess total spending

Cost-push Inflation

Explains rising prices in terms of factors that raise per-unit production costs at each level of spending. A major source of cost-push inflation has been so-called supply shocks. Per-unit cost production squeezes profits and reduces the amount of output firms are willing to supply at the existing price level. As a result, the economy's supply of goods and services decline and the price level rises. Costs are pushing the price level upward, whereas in demand-pull inflation demand is pulling it upward

Real interest rate

Percentage increase in purchasing power that the borrower pays the lender.

Income that has been adjusted for changes in prices over time is called:

Real income

What does inflation redistribute?

Real income

What income will be affected of the change in the price level differs from the change in a person's nominal income?

Real income

Per-unit production costs

The average cost of a particular level of output. Per-unit production cost = (total input cost / units of output)

Cost push inflation is caused by:

The increase in the per-unit production costs at each level of spending.

Nominal income

The number of dollars received as wages, rent, interest, or profit. (in current dollars)

Nominal interest rate

The percentage increase in money that the borrower pays the lender, including that resulting from the built-in expectation of inflation, if any.

Unemployment rate

The percentage of the labor force unemployed. Unemployment rate= (unemployed / labor force) x 100

When reporting part-time workers are full-time workers in measuring (GDP?), is it overstated or understated?

Understated

Real Wages

Wages have been adjusted for changes in prices over time.

GDP Gap (formula)

actual GDP - potential GDP

Then number of persons unemployed for long periods as a percentage of the labor force is much lower than:

the overall unemployment rate