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.

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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.