Ch 9 Unemployment and Inflation
The Inflation Rate Equation
(New CPI - initial CPI / Initial CPI) x 100
The employment-population ratio equation
(employment/working age population) x 100
CPI equation
(expenditures in the current year/expenditures in the base year) x 100
The Labor force Participation rate equation
(labor force/working age population) x 100
To obtain prices of a representative group of goods and services, the Bureau of Labor Statistics (BLS) conducts a monthly survey of __________ households nationwide on their spending habits. The results of this survey are used to construct a market basket of __________ types of goods and services purchased by the typical urban family of four.
14000 211
Deflation
A decline in the price level
Suppose the fixed interest rate on a loan is 5.75% and the rate of inflation is expected to be 4.25%. The real interest rate is 1.5%. Part 2 Suppose now that instead of 4.25%, the inflation rate unexpectedly reaches 5.5%. Who gains and who loses from this unanticipated inflation? (Mark all that apply.) Part 3 A. Borrowers lose from a lower real interest rate. B. Borrowers gain from a lower real interest rate. C. Lenders gain from a lower real interest rate. D. Lenders lose from a lower real interest rate.
Borrowers gain from a lower real interest rate. Lenders lose from a lower real interest rate.
Unemployed
In government statistics, someone who is not currently at work but who is available for work and who has actively looked for work during the pervious month
Who gains and who loses from this unanticipated inflation?
Lenders lose from a lower real interest rate. Borrowers gain from a lower real interest rate.
household survey data
Provided info on the number of persons unemployed and on the number of persons in the labor force. Includes self-employed
perfectly anticipated inflation imposes costs. Why?
Some wages will fail to keep up with anticipated inflation. Paper money loses its purchasing power by the rate of inflation. Menu costs.
Natural rate of unemployment
The normal rate of unemployment, consisting of frictional unemployment and structural unemployment. (Frictional + Structural) -unemployment rate that results when the economy produces the potential level of real GDP
labor force paticipation rate
The percentage of the working-age papulation in the labor force
Compare dollar values for different years
Value in "2008" dollars = value in "1984" x (CPI 2008/CPI 1984)
Price level
a measure of the average price of some set of goods and services in the economy
Consumer Price Index (CPI)
a measure of the overall cost of the goods and services bought by a typical consumer
Efficiency wages
an above-market wage that a firm pays to increase workers' productivity
Producer Price Index (PPI)
an average of the prices received by producers of goods and services at all stages of the production process -specifically targets intermediate goods
The "normal or natural" underlying level of unemployment in the economy is the __________.
full employment rate of unemployment
Unanticipated deflation __________.
hurts net debtors
employed
in government statistics, someone who currently has a job or who is temporarily away from his or her job
unanticipated inflation
it causes greater redistribution of income between those making payments and those awaiting payments in the future *some people gain, and other people lose.
establishment survey or payroll servey
measure total employment in the economy. Monthly survey about 300,000 establishments.
The Unemployment rate equation Which measures the % of labor force that is unemployed
number of unemployed/labor force x 100
discouraged workers
people who are available for work but have not looked for a job during the previous four weeks because they believe no jobs are available for them
frictional unemployment
short-term unemployment that arises from the process of matching workers with jobs EX: An unemployed college graduate is looking for his first job. / An individual refuses to work for minimum wage.
Menu cost
the costs to firms of changing prices
Real interest rate
the nominal interest rate minus the inflation rate (Suppose an economy has an inflation rate of 3.7% and a bank makes a loan with an interest rate of 7.4%. In this case, the real interest rate is 3.7% Because 7.4-3.7= 3.7)
Inflation rate
the percentage increase in the price level from one year to the next
Unemployment rate
the percentage of the labor force that is unemployed
Employment-population ratio
the percentage of the working-age population that is employed
nominal interest rate
the stated interest rate on a loan
labor force
the sum of employed and unemployed workers in the economy
cyclical unemployment
unemployment caused by a business cycle recession EX:A computer programmer is laid off because of a recession. / Slumping sales lead to the cashier being laid off.
structural unemployment
unemployment that arises from a persistent mismatch between the skills or attributes of workers and the requirements of jobs EX: Advances in technology make the assembly-line worker's job obsolete. / A high school graduate lacks the skills necessary for a particular job.