Macroeconomics-Chapter 8-Unemployment & Inflation

minimum wage

A ______________ _____________ is a government-mandated floor on the price of labor. (221)

Labor force

A country's __________ __________ is the sum of employment and unemployment—that is, of people who are currently working and people who are currently looking for work, respectively. (212)

jobless recovery

A period in which real GDP is growing at a below-average rate and unemployment is rising is called a jobless recovery or a growth recession. Since 1990, there have been three recessions, each of which was followed by a period of ___________ ______________. (216)

unemployment/inflation/Unemployment/Inflation

As the FOMC knows, high ________________ and high ______________ are the two great evils of macroeconomics: high ___________________ incurs human and economic waste because willing workers can't find jobs. High ________________ undermines the monetary system through rapidly rising prices. (211)

long-term/long-term

Because gains for some and losses for others result from inflation that is either higher or lower than expected, yet another problem arises: uncertainty about the future inflation rate discourages people from entering into any form of _________ ________ contract. This is an additional cost of high inflation, because high rates of inflation are usually unpredictable. In countries with high and uncertain inflation, __________ __________ loans are rare, which makes it difficult in many cases to make long-term investments. (229)

menu cost/menu costs

Changing a listed price has a real cost, called a _________ ______. Although the potential burden imposed by __________ _________ have diminished in advanced economies as more sales have shifted online and prices can be changed electronically, they still exist. For example, to change prices in a supermarket or a clothing store requires sending clerks to change the listed price with each item. In the face of inflation, of course, firms are forced to change prices more often than they would if the aggregate price level was more or less stable. This means higher costs for the economy as a whole. (228) (IE. During the Brazilian inflation of the early 1990s, for instance, supermarket workers reportedly spent half of their time replacing old price stickers with new ones.) (228)

frictional/structural

Continual job creation and destruction are features of modern economies, making a naturally occurring amount of unemployment inevitable. Within this naturally occurring amount, there are two types of unemployment—____________ and ________________. (218)

less skilled

For many American workers, the minimum wage is irrelevant; the market equilibrium wage for these workers is well above the national price floor. But for _____________ ___________ workers, the minimum wage may be binding—it affects the wages that people are actually paid and can lead to structural unemployment in particular markets for labor. (221)

higher/lower

If the actual inflation rate is ________ than expected, borrowers gain at the expense of lenders: borrowers will repay their loans with funds that have a lower real value than had been expected. Conversely, if the inflation rate is _______ than expected, lenders will gain at the expense of borrowers: borrowers must repay their loans with funds that have a higher real value than had been expected. (IE. In modern America, home mortgages are the most important source of gains and losses from inflation. While some mortgage interest rates are linked to the inflation rate, the vast majority are not, creating big winners and losers when inflation rates have changed unexpectedly. Americans who took out mortgages in the early 1970s quickly found the real cost of their payments reduced by higher-than-expected inflation. In contrast, those who took out mortgages in the early 1990s lost. The inflation rate fell to lower-than-expected levels in the following years and raised the cost of their payments.) (229)

Zero

If you are searching for work, it's normal to take at least a few weeks to find a suitable job. Yet a worker who is quite confident of finding a job, but has not yet accepted a position, is counted as unemployed. As a consequence, the unemployment rate never falls to ________, even in boom times when jobs are plentiful. (213)

frictional unemployment

In general, unemployment rates tend to be lower for experienced than for inexperienced workers. Because experienced workers tend to stay in a given job longer than do inexperienced ones, they have lower ______________ ______________. Also, because older workers are more likely than young workers to be family breadwinners, they have a stronger incentive to find and keep jobs. (223)

Frictional

In periods of higher unemployment, however, workers tend to be jobless for longer periods of time, suggesting that a smaller share of unemployment is . ______________ (219)

shoe-leather/menu/unit-of-account

Economists believe that high rates of inflation impose significant economic costs. The most important of these costs are _______ _________ costs, ________ costs, and _______ ____ _________ costs (226).

nominal/real/nominal/real/

Economists summarize the effect of inflation on borrowers and lenders by distinguishing between the __________ interest rate and the _______ interest rate. The __________ interest rate is the interest rate in dollar terms—for example, the interest rate on a student loan. The ________interest rate is the nominal interest rate minus the rate of inflation. For example, if a loan carries an interest rate of 8%, but there is 5% inflation, the real interest rate is 8% - 5% = 3%. (229)

lockouts

Employers have acted to counter the bargaining power of unions by threatening and enforcing _______________—periods in which union workers are locked out and rendered unemployed—while hiring replacement workers. (222)

job separations

Even during good times, most Americans know someone who has lost his or her job. In January 2017, the U.S. unemployment rate was only 4.8%, relatively low by historical standards. Yet in that month there were 5.2 million ______________ ____________—terminations of employment that occur because a worker is either fired or quits voluntarily. (218)

real GDP

Falling ____________ _______ is always associated with a rising rate of unemployment, causing a great deal of hardship for families. (216)

disinflation

There is not much evidence that a rise in the inflation rate from 2% to 5% would do a great deal of harm to the economy. Still, policy makers generally move forcefully to bring inflation back down when it creeps above 2% or 3%. Why? Because experience shows that bringing the inflation rate down—a process called _______________—is very difficult and costly once a higher rate of inflation has become well established in the economy. (230)

unit-of-account

This role of the dollar as a basis for contracts and calculation is called the ________ ____ __________ role of money. It's an important aspect of the modern economy. Yet it's a role that can be degraded by inflation, which causes the purchasing power of a dollar to change over time—a dollar next year is worth less than a dollar this year. (228)

Current Population Survey/60,000

To estimate the numbers that go into calculating the unemployment rate, the U.S. Census Bureau carries out a monthly survey called the ______________ _______________ ____________, which involves interviewing a random sample of approximately ______________ American families. People are asked whether they are currently employed. If they are not employed, they are asked whether they have been looking for a job during the past four weeks. The results are then scaled up, using estimates of the total population, to estimate the total number of employed and unemployed Americans. (212)

True

True or False: The natural rate of unemployment changes over time and can be affected by government policies. (223)

True

True or false: The minimum wage in the United States is quite low compared with that in other wealthy countries, and isn't binding for the vast majority of workers. (221)

27.3%

Unemployment rates vary greatly among different demographic groups. For example, although the overall unemployment rate in May 2017 was 4.3%, the unemployment rate among African-American teenagers was ________%. (215)

Deflation

Unexpected ______________—a surprise fall in the price level—creates winners and losers, too. Between 1929 and 1933, as the U.S. economy plunged into the Great Depression, the consumer price index fell by 35%. This meant that debtors, including many farmers and homeowners, saw a sharp rise in the real value of their debts, which led to widespread bankruptcy and helped create a banking crisis, as lenders found their customers unable to pay back their loans. (230)

labor force characteristics/labor market institutions/government policies

What are the three most important factors that cause the natural rate of unemployment to change? (223)

structural

When many firms pay efficiency wages, the result is a pool of workers who want jobs but can't find them. So the use of efficiency wages by firms leads to _____________ unemployment. (222)

above

When the legal floor on wages is ___________ the equilibrium wage rate, this leads to a persistent surplus in the labor market: the quantity of labor supplied is larger than the quantity demanded. (221)

Frictional

When there is a low unemployment rate, periods of unemployment tend to be quite short, suggesting that much of the unemployment is ______________. (219)

structural unemployment

When workers have increased bargaining power, they tend to demand and receive higher wages. Unions also bargain over benefits, such as health care and pensions, which we can think of as additional wages. Indeed, economists who study the effects of unions on wages find that unionized workers earn higher wages and more generous benefits than non-union workers with similar skills. The result of these increased wages can be the same as the result of a minimum wage: labor unions push the wage that workers receive above the equilibrium wage. Like a binding minimum wage, this leads to _____________ ______________. In the United States, however, due to a low level of unionization, the amount of unemployment generated by union demands is likely to be very small. (222)

Cyclical

______________ unemployment is the deviation of the actual rate of unemployment from the natural rate; that is, it is the difference between the actual and natural rates of unemployment. As the name suggests, cyclical unemployment is the share of unemployment that arises from the downturns of the business cycle. (223)

Structural

_______________ unemployment occurs when the wage rate is, for some reason, persistently above the equilibrium rate. Several factors can lead to a wage rate in excess of WE, the most important being minimum wages, labor unions, efficiency wages, the side effects of government policies, and mismatches between employees and employers. (221)

Frictional

________________ unemployment exists even when the number of people seeking jobs is equal to the number of jobs being offered—that is, the existence of frictional unemployment doesn't mean that there is a surplus of labor. (219)

Technological/Technological/technology/technological

______________________ change, coupled with labor market institutions, can also affect the natural rate of unemployment. __________________ change tends to increase the demand for skilled workers who are familiar with the relevant technology and reduce the demand for unskilled workers. Economic theory predicts that wages should increase for skilled workers and decrease for unskilled workers as ______________________ advances. But if wages for unskilled workers cannot go down—say, due to a binding minimum wage—increased structural unemployment, and therefore a higher natural rate of unemployment, will result during periods of faster _________________ change. (224)

unit-of-account costs

The _______ ____ __________ _________ of inflation are the costs arising from the way inflation makes money a less reliable unit of measurement. These kinds of costs may be particularly important in the tax system because inflation can distort the measures of income on which taxes are collected. For example, assume that the inflation rate is 10%, so the overall level of prices rises 10% each year. Suppose that a business buys an asset, such as a piece of land, for $100,000, then resells it a year later for $110,000. In a fundamental sense, the business didn't make a profit on the deal: in real terms, it got no more for the land than it paid for it. But U.S. tax law would say that the business made a capital gain of $10,000, and it would have to pay taxes on that phantom gain. (228)

Bureau of Labor Statistics

The __________ ___ ____________ _____________ is the federal agency that calculates the official unemployment rate. It also calculates broader "measures of labor underutilization" that include the three categories of frustrated workers. (213)

unemployment

The ________________ rate is a very good indicator: its ups and downs closely reflect economic changes that have a significant impact on people's lives. (215)

U.S. Census Bureau

The ________________________, the federal agency tasked with collecting data on unemployment, considers the unemployed to be those who are "jobless, looking for jobs, and available for work." (212)

labor unions/unions

The actions of ____________ __________ can have effects similar to those of minimum wages, leading to structural unemployment. By bargaining collectively for all of a firm's workers, _____________ can often win higher wages from employers than workers would have obtained by bargaining individually. This process, known as collective bargaining, is intended to tip the scales of bargaining power more toward workers and away from employers. (222)

unemployment/stability

The chair of the Federal Reserve balances the goals of low ___________________ and price ______________ when deciding whether to give the economy more gas or hit the brakes. (211)

less/more

The labor demand curve indicates that when the price of labor—the wage rate—increases, employers demand ________ labor. The labor supply curve indicates that when the price of labor increases, ________ workers are willing to supply labor at the prevailing wage rate. These two forces coincide to lead to an equilibrium wage rate for any given type of labor in a particular location. (220)

less

The most common complaint about inflation, which is an increase in the price level, is that it makes everyone poorer—after all, a given amount of money buys __________. But inflation does not make everyone poorer. To see why, it's helpful to imagine what would happen if the United States did something other countries have done from time to time—replacing the dollar with a new currency. (225)

interest rate

The most important decision the FOMC makes is setting the level of the federal funds rate, the key benchmark ___________ __________ for the U.S. economy. The critical importance of the federal funds rate was illustrated in 2008, when a financial crisis sent the U.S. economy into free fall. In the eye of the storm, the FOMC took the extraordinary step of cutting the federal funds rate to zero in order to stabilize financial markets and the economy. (211)

Underemployed

The number of people who work part time because they cannot find full-time jobs. These workers are not counted as unemployed.(213)

Labor Force

The percentage of the population age 16 or older that is in the labor force. (212)

Unemployment Rate

The percentage of the total number of people in the labor force who are unemployed, calculated as unemployment/(unemployment + employment). (212)

inflation

The two principal goals of macroeconomic policy are low unemployment and price stability, usually defined as a low but positive rate of ____________. (211)

incentive

government policies designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. Most economically advanced countries provide benefits to laid-off workers as a way to tide them over until they find a new job. In the United States, these benefits typically replace only about 45% of a worker's income and expire after 26 weeks. The drawback to this generosity is that it reduces a worker's ______________ to quickly find a new job. (222)

discouraged workers

individuals who want to work but who have stated to government researchers that they aren't currently searching for a job because they see little prospect of finding one given the state of the job market. These individuals are not included in the unemployment rate. (213)

marginally attached workers

nonworking individuals who say they would like a job and have looked for work in the recent past but are not currently looking for work. These individuals are not included in the unemployment rate. (213)

natural rate of unemployment

the normal unemployment rate around which the actual unemployment rate fluctuates; the unemployment rate that arises from the effects of frictional and structural unemployment. (223)

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. (229)

real income

the rise in prices that has actually taken place since the early 1960s hasn't made America poorer because it has also raised incomes by the same amount: ____________ __________—incomes divided by the price level—haven't been affected by the rise in overall prices. The moral of this story is that the level of prices doesn't matter: the United States would be no richer than it is now if the overall level of prices was still as low as it was in 1961; conversely, the rise in prices over the past 50 years hasn't made us poorer. (226)

job search

the time spent by workers in looking for employment. (218)

real wage

the wage rate divided by the price level. (226)

frictional unemployment

unemployment due to time workers spend in job search. A certain amount of this type of unemployment is inevitable due to the constant process of economic change.(218)

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, even when the economy is at the peak of the business cycle. (220)

Four

An individual is considered unemployed if he or she doesn't currently have a job and has been actively seeking a job during the past ______ weeks. (212)

efficiency wages

Actions by firms can contribute to structural unemployment. Firms may choose to pay ________________ ____________—wages that employers set above the equilibrium wage rate as an incentive for their workers to perform better.

Unemployment/Inflation

After seven long years, what new evidence convinced the FOMC that it was time for a rate increase? The answer mainly came down to two numbers: the ________________ rate and the _____________ rate. (211)

Shoe-Leather Costs/Shoe-leather costs/

Increased costs of transactions caused by inflation are known as __________ __________ ________, an allusion to the wear and tear caused by the extra running around that takes place when people are trying to avoid holding money. _____________ __________ ___________ are substantial in economies with very high inflation, as anyone who has lived in such an economy—say, one suffering inflation of 100% or more per year—can attest. (IE. During the most famous of all inflations, the German hyperinflation of 1921-1923, merchants employed runners to take their cash to the bank many times a day to convert it into something that would hold its value, such as a stable foreign currency. In such cases, to avoid having the purchasing power of their money eroded, people use up valuable resources, such as the labor of the German runners, that can be used productively elsewhere. During the German hyperinflation, so many banking transactions were taking place that the number of employees at German banks nearly quadrupled—from around 100,000 in 1913 to 375,000 in 1923) (227)

expansions

It's important to recognize that economic _________________ aren't always periods of falling unemployment. One explanation is that although the economy was growing, it was not growing fast enough to reduce the unemployment rate. (215)

high

Most economists, however, agree that a sufficiently _________ minimum wage does lead to structural unemployment. (221)

Employment

The total number of people currently employed for pay in the economy, either full time or part time. (212)

Unemployment

The total number of people who are actively looking for work but aren't currently employed. (212)