Macro: chapter 7 Inflation and unemployment
Higher inflation
Benefits the borrower if fixed loan
When does unemployment raise
During contractions
When does unemployment fall
Expansion
Why can unanticipated lower GDP?
It can lower GDP because it causes unemployment
Potential Real GDP
Measure what we are capable of producing at the natural rate of umeployment
structional unemployment
Mismatch between jobs available and the skill level of the unemployed. Known as a product of a technological change in the economy. ex: Robots replacing unskilled workers, so workers must get training in computer operation if they want to keep working.
Business cycle
Period of irregular variations in economic activity
Which of the following refers to a business cycle ?
Periodic but irregular variation in economic activity
Seasonal unemployment
Product of regular reoccurring changes in the hiring means of certain industries on a monthly basis
Who is not considered to be a part of the labor force?
Retired, students, discourage workers,
Ski resort employment
Seasonal employment
What will happen when a dynamic labor market is operating efficiently
Some unemployment will still be present
Which of the following factors could start demand-pull inflation? a) increase in tax rates b)an increase in government expenditure c) a decrease in wage rates d) a decrease in exports
b) an increase in government expenditure
Inflation
generalized rise in the average level of prices -persistently rising price level -Decline in purchasing power of money over time
cyclical unemployment
unemployment caused by a business cycle recession
Structural unemployment
unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one -improvement of technology
cyclical unemployment
unemployment, which results when the overall demand for goods and services in an economy cannot support full employment. ex: during recession, cyclical unemployment goes up
Which of the follow about unemployment is true
when an economy is at full employment, the actual unemployment rate will equal the economy's natural rate of unemployment
How to calculate inflation
(CPI this year -CPI last year) / (CPI last year) * 100
How to calculate real value ?
(Nominal value / Price index) * 100
frictional unemployment
A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs and first-time jobseekers. ex: graduating students look for a job
What is hyperinflation?
A very rapid rise in the price level; and extremely high rate of inflation. 50% which may cause an economy to collapse
When businesses raise prices, this is known as?
Anticipated inflation
When lenders raise interest rates, this is known as what type of inflation?
Anticipated inflation
Los of construction jobs during the 2008 financial crisis
Cycling unemployment
If frictional unemployment increased but structural unemployment decreased by more the natural rate of unemployment would
Decrease
Cost-post inflation
Increase in production cost that cause firms to raise prices to avoid losses -such as oil that has gone up causing everything to go up
Demand pull inflation
Increase in total spending that are not offset by increase in the supply of goods and services and so cause the average level to rise -increase in supply -too many dollars chasing too little goods
Cost push inflation
Increases in production costs that cause firms to raise prices to avoid losses
Demand Pull inflation
Increases in total spending that are not offset by increases in the supply of goods and services and so cause the average level of prices to rise
Anticipated/ expected inflation
Inflation is expected; able to plan for it accordingly
Unanticipated inflation
Inflation rate is higher or lower than economists, regulators or others anticipated. Unexpected high inflation redistributes real income or purchasing power away from those receiving fixed payments to those making fixed payment. When inflation is higher than expected it tends to hurt workers, recipients of fixed income, and savers
Unanticipated inflation/ unexpected inflation
Inflation rates are higher or lower than economists anticipated
What does GDP gap measure
The difference between what the economy can produce at the natural rate of umemploment
What are the type of inflation known to hurt workers, recipients of fixed incomes, and savers?
Unanticipated
Seasonal unemployment
Unemployment that occurs as a result of harvest schedules or vacations, or when industries slow or shut down for a season ex: Ski resorts
nominal value
Value expressed in dollars of the current period current prices
Real Value
Value expressed in terms of units / prices with constant purchasing power (constant prices) -inflation adjusted value
Anticipated inflation
When inflation is expected agents in economy can plan for it and act accordingly-businesses raise prices, workers demand higher wages, lenders raise interest rate and so on
Deflation
a persistently falling price level
Inflation
a persistently rising price level
GDP gap calculation
actual GDP - potential GDP
Mis match of employees skills and skill requirement
known as structural unemployment
Deflation
persistently falling price level
How to calculate the real interest rate ?
real interest rate = nominal interest rate - inflation rate
Friction unemployment
short ten occurs because workers and employers have to find one another
Labor force
the number of people in a population who is either employed or unemployed
Inflation exists whenever
the overall price level is rising
unemployment rate
the percentage of the labor force that is unemployed
natural rate of unemployment
the unemployment rate that arises from the effects of frictional plus structural unemployment plus seasonal