ch 8: Unemployment and Inflation

Shoe-leather costs (of inflation)

the increased costs of transactions caused by inflation

Unemployment rate

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

Disinflation

the process of bringing down inflation that has become embedded in expectations

Cyclical unemployment

the difference between the actual rate of unemployment and the natural rate of unemployment

Real interest rate

the nominal interest rate minus the inflation rate

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

Underemployment

the number of people who work part-time because they cannot find full-time jobs

Labor Force Participation Rate

the percentage of the population age 16 or older that is in the labor force

Menu cost

the real cost of changing a listed price

Structural unemployment

unemployment that results when there are more people seeking jobs in a labor market than there are jobs available at the current wage rate

Efficiency wages

wages that employers set above equilibrium wage rate as an incentive for workers to deliver better performance

Job Search

when workers spend time looking for employment

Nominal interest rate

the interest rate in dollar terms

Real Income

Income divided by the price level

Unit-of-account costs (of inflation)

costs arising from the way inflation makes money a less reliable unit of measurement

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

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

Labor Force

the sum of employment and unemployment; that is, the number of people who are currently working plus the number of people who are currently looking for work

Employment

the total number of people currently employed for pay in the economy, either full-time or part-time

Unemployment

the total number of people who are actively looking for work but aren't currently employed

Real Wage

the wage rate divided by the price level

Frictional unemployment

unemployment due to time workers spend in job search