Chapter 13
what is the efficiency wage?
An above-market wage that firms pay to increase workers' productivity
In general what type of graduates have much lower unemployment rates than other individuals with other levels of education?
College graduates
At full employment, what type of unemployment is zero
Cyclical unemployment
What are considered real Values
Economic variable that have been corrected to account for the effects of inflation
What are considered nominal values?
Economic variables that are calculated in current year prices
Employment-population rate
Employment/Working-age population
When the economy is at full employment, which types of unemployment remain?
Frictional and structural unemployment remain.
What three categories in the CPI market basket make up more than 75% of the basket?
Housing, transportation, and food
What happens to the costs to society if inflation is anticipated?
If inflation is anticipated it cost less to society than if unanticipated
What is the consumer price index
It measures the cost of an unchanging basket of goods and services
Working-age population
Labor force + not in labor force
Labor force participation rate
Labor force/Working-age population
Definition of structural unemployment
Long-term permanent changes in the economy that eliminates the need for a particular skill set. Advances in technology and globalization ensures that the economy always has some structural unemployment
In calculating CPI, does the market basket include large equipment purchased by firms?
No!
Is a student who will be graduating soon and looking for a job, considered officially unemployed?
No!
Is a housewife who is considering looking for a job considered officially unemployed?
No, because she is not actively looking for a job
At zero inflation, what is relationship between interest rates and inflation
Nominal interest rate equals the real interest rate
Unemployment rate
Number of employed/Labor force
The producer price index tracks the prices firms receive for goods and services at what stages of production?
PPI tracks prices firms receive for goods and services at ALL stages of production
Definition of 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.
Who gains purchasing power during deflation?
People who hold onto cash gain purchasing power during deflation because the power of their cash increases
Definition of unemployed
Someone who is not currently at work but who is available for work and who has actively looked for work during the previous month
What market basket specifically targets intermediate goods?
The basket used by the producer price index
Definition of frictional unemployment
The short-term unemployment that arises from workers, in the process of changing jobs.
Definition of labor force
The sum of employed and unemployed workers in the economy
What is the definition of the natural rate of unemployment?
The unemployment rate that results when the economy produces the potential level of real GDP
Who does unanticipated deflation hurt?
Unanticipated deflation hurts net debtors
Are the unemployed included in the labor force
Yes!
Is a non-working individual who has looked for a job in the past week, considered officially unemployed?
Yes, Because the individual is jobless and activity looking for a job.
Inflation Rate equation using CPI Values
[(CPI2-CPI1)/CPI1)]*100 = Inflation rate
Definition of cyclical unemployment
unemployment that is due to a recession or downturn in the business cycle.
