ECON - chapter 8

unemployment rate formula

(# of unemployed workers/labor force) x 100

percent change

((present year - previous year)/previous year) * 100

labor force participation rate formula

(labor force/pop age 16+) x 100

result of number of factors like:

*competition for scarce resources *queuing of production for fixed resources *inadequate expectations by firms

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Since 1968, the price level in the United States has __________ and the inflation rate has _______________.

1. risen 2. risen + fallen

when did US inflation rate peak?

1980 and then fell sharply

distribution of the unemployed by duration

<5 weeks = 45% 5-14 weeks = 32% 15-26 weeks = 12% >27 weeks = 11%

True or False? Structural unemployment may be caused by firms paying efficiency wages.

True

can policy errors lead to high inflation?

YES - Israel!

stagflation

a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation)

natural unemployment

frictional unemployment + structural unemployment

natural rate rose in 1970s

more women entering workforce babyboomers turned working age - so more ppl under 25 many were inexperienced

actual unemployment

natural unemployment + cyclical unemployment

real interest rate

nominal interest rate minus rate of inflation

discouraged workers

nonworking ppl who are capable of working but have given up looking for a job given the state of the job market

natural rate of unemployment

normal unemployment rate around which the actual unemployment rate fluctuates *it is the unemployment rate that arises from the effects of frictional plus structural unemployment

employment

number of people currently employed in the economy, either full time or part time

unemployment

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

labor force participation rate

percentage of pop aged 16+ that is in the labor force

labor force participation rate

percentage of the population at least 16 years old that is in the labor force.

unemployment rate

percentage of total number of people in the labor force who are unemployed

due to __________ it was determined that several phillips curves exist

periods of stagflation

disinflation

process of bringing the inflation rate down

side effects of gov policies

public policies designed to help workers who lose their jobs; these policies can lead to structural unemployment as an unintended side effect

unemployment always rose when....

real GDP fell

menu cost

real cost of changing a listed price

unemployment during recessions and expansions

recession: always rises expansion: usually (but not always) falls

unit of acct costs arise from

the way inflation makes money a less reliable unit of measurement

True or False? During the Great Depression from 1929 through 1933, deflation was a big problem.

true

True or False? If an employed person retires and no one is hired to replace him, the unemployment rate will increase.

true

frictional unemployment

unemployment due to the time workers spend in job search

in addition to estimating unemployment rate for the nation as a whole, the U.S. gov also estimates

unemployment rates for each state

structural unempoyment

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

real wage

wage rate divided by price level

efficiency wages

wages that employers set above the equilib wage rate as an incentive for better performance

effect of a min wage on the labor market

when the gov sets a min wage, WF, that exceeds the market equilib wage rate, WE, the number of workers, QS, who would like to work at that min wage is greater than the number of workers, QD, demanded at that wage rate *surplus of labor = structural unemployment

marginally attached workers

would like to be employed and have looked for a job in the recent past but are not currently looking for work

cyclical unemployment

deviation in the actual rate of unemployment from the natural rate

labor force

equal to the sum of employment and unemployment

underemployment

# of ppl who work part time bc they cannot find full-time jobs

over the past 40 years, what has happened to CPI and inflation rate?

CPI has continuously gone up inflation rate - has both ups and downs

cyclical unemployment

Cyclical unemployment is actual unemployment (9.2%) less the natural rate (4%), which is 5.2%.

union membership has a direct/indirect relationship with natural rate of unemploymet

DIRECT - A reduction in union membership decreases the natural rate of unemployment.

real interest rate

The nominal interest rate less the rate of inflation is the real interest rate.

underemployment

The number of people who work part time but would prefer full-time jobs

Organization for Economic Cooperation and Development (OECD)

association of relatively wealthy countries (Europe, NA, Japan, Korea, NZ, Australia) collects data on unemployment rates in its member nations using the U.S. definition *shows average unemployment *persistently high European employment rates are the result of gov policies, such as high min wages and generous employment benefits, which both discourage employers from offering jobs and discourage workers from accepting jobs, leading to high rates of structural unemployment

unemployment rates of diff groups, 2007

black teens: 31.2% white teens: 14.4% blacks: 7.7% overall: 4.7%

U6

broadest measure of unemployment includes unemployed, discouraged, marginally attached, and underemployed workers.

unions

by bargaining for all a firm's workers collectively (collective bargaining), unions can often win higher wages from employers than the market would have otherwise provided when workers bargained individually

min wages

gov-mandated floor on the price of labor *in the US, the national min wage in 2005 was $5.15 an hour

if prices double, what happens to real income

halves

sources of US versus Them

helps borrowers, hurts lenders hurts those on fixed income rich have more options to avoid inflation

before vs after - inflation and unemployment

high inflation and unemployment in 1971-1984 low inflation and unemployment in 1950-1970

Work by George Akerlof, William Dickens, and George Perry implies that

if inflation is reduced from two to zero percent, unemployment will be permanently increased by 1.5%

real income

income divided by price level

Inflation causes nominal interest rates to

increase

frictionally unemployed

looking for a job even though they have already been offered one

shoe leather costs

increased costs transactions caused by inflation

what are the main concerns of macroeconomic policy?

inflation and unemployment

in 1958, A.W. "Bill" Phillips described an empirical relationship bw

inflation and unemployment *as unemployment decreases, inflation increases

nominal interest rate

interest rate expressed in dollar terms

workers who spend time looking for employment are engaged in

job search

sources of general unrest

shoe leather costs menu costs unit of acct costs

unemployment number is usually quoted as....

someone who has been looking for work during the past 4 weeks *broader measures also count discouraged workers, marginally attached workers, and underemployed

If the minimum wage is set above the market equilibrium wage rate, then:

the government has established a binding price floor with the minimum wage.

The natural rate of unemployment would decrease if

the labor force is older