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