Econ 202- ch. 9

Unemployment rate formula

= Unemployment / labor force

labor force formula

= employed+ unemployed

BLS

Bureau of Labor Statistics

Inflation Rate formula

CPIcurrent year - CPIbaseyear/CPIbaseyear

An average of the prices of the goods and services purchased by a typical urban family of four.

Consumer price index

An index comparing the cost of buying the market basket of goods and services in the current year to the cost of buying the same market basket in the base year

Consumer price index

CPI

Consumer price index

Household survey

Current population survey of 60,000 households to measure employment status of everyone 16 years or older.

CPI formula

Expenditure on Market basket in Current year/ Expenditures on Market Basket in Base year

Cyclical unemployment is not a part of the ____ _____ ______, it makes _____ higher than the Natural rate.

Natural rate of unemployment, unemployment

to correct the effects of inflation, divide the nominal variable by a ____ and multiply by 100 to obtain a ____

Price index, real variable

what is a better measure of the true cost of borrowing and the true return from lending

Real interest rate

Nominal interest rate formula

Real interest rate+(expected) inflation rate+

Market basket

Representative group of goods and services purchased by the typical urban family of four

how does CPI overstate the cost of living and inflation rate?

Substitution bias, and increase in quality bias

Creation and destruction of jobs results from changes in _____________, _____________, and success and failure of entrepreneurs in responding to these changes

consumer taste, technological progress

what is a problem with deflation?

consumers reduce consumption spending,waiting for even lower prices

inflation rises, in general, both the ______ and ______.

cost of living, nominal income (prices of what we buy and the prices of what we sell).

what increases the burden on borrowers?

deflation that is not expected because it increases the real interest rate.

the real variable will be measured in

dollars of the base year

3 conditions to be counted as unemployed

don't have a job, available for work, actively looked for work in the last 4 weeks.

Core CPI

excludes food and energy rices because prices of food and energy tend to fluctuate up and down for reasons that may not be related to the causes of general inflation and that cannot easily be controlled by the Fed's actions. Causes such as droughts or hurricanes, and political unrest in oil producing countries.

"keep searching, there are jobs here for which you are qualified" describes what kind of unemployment

frictional unemployment

Workers have different skills, interests, and abilities, and jobs have different skill requirements, working conditions, and pay levels. A new worker entering the labor force or a worker who has lost a job will not find an acceptable job right away.

frictional unemployment

"Normal" rate of unemployment consists of _____ unemployment plus ___ unemployment

frictional, structural

3 types of unemployment

frictional, structural, and cyclical

Why is the BLS measure understate the true degree of unemployment?

it doesn't account for discouraged workers, and involuntary part-time workers.

What is the problem from inflation

it redistibutes between borrowers and lenders when actual inflation rate differs from expected inflation rate.

The U.S. economy creates and destroys millions of jobs every year. BLS numbers reported each month are net job changes, what does this do to the gross number of jobs?

it understates the number of jobs created and destroyed.

Restrictive labor laws

make it difficult for companies to fire workers, making companies hesitate to hire workers, increasing the natural rate of unemployment.

real interest rate

nominal interest rate- inflation rate

real interest rate formula

nominal interest rate- inflation rate.

Economic variables that are calculated in current year prices are referred to as

nominal variables

Real wage =

nominal wage/CPI

Cost of living index

not a measure of the standard of living

Increase in Quality bias

quality improvements of goods and services are not filtered out completely and show up as an increase in the cost of living (inflation).

when you have deflation (negative inflation)

real > nominal

when you have inflation

real< nominal

frictional unemployment

short term unemployment arising from the process of matching workers with jobs.

Why is the BLS measure overstate the true degree of unemployment?

some people claim to be actively looking for work but they really aren't to remain eligible for unemployment payments, and it doesn't account for jobs in the underground economy.

Nominal interest rate

stated interest rate on a loan

Caused by changes in the structure of the economy like shifts in manufacturing techniques and increased use of computers

structural unemployment

___ change in an economy will cause __ unemployment

structural, structural

Standard of living

the amount of income per person

if inflation is greater than expected then

the borrower wins

Establishment survey (payroll survey)

the bureau of labor statistics samples about 300,000 business establishments to see how many people they employ on the companies payroll.

if cyclical unemployment is eliminated in the economy, then

the economy is considered to be in full employment.

Natural rate of unemployment

the unemployment rate that would result from the combination of economic, social, and political factors that exist at a time.

What are factors that affect the natural rate of unemployment?

the usual pattern of companies expanding and contracting their workforces in a dynamic economy, social and economic forces that affect the labor market or public policies that affect either the eagerness of people who work or the willingness of businesses to hire.

Unemployment insurance payments allow

time to search for a good job match and it serves as an automatic stabilizer for the economy.

structural unemployment

unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs.

Cyclical unemployment

unemployment caused by a business cycle recession or slowdown.

How do government policies impact frictional and structural unemployment

unemployment insurance payments and restrictive labor laws.

Substitution bias

using a fixed market basket, the CPI assumes that consumers do not buy less of a good whose relative price rises and more of a good whose relative price falls.