Macroeconomics - CH23 Unemployment and Inflation
Macroeconomics - CH23 Unemployment and Inflation
Macroeconomics - CH23 Unemployment and Inflation
How do you calculate the inflation rate?
inflation rate: the percent increase in the overall level of prices per year.
Explain the term deflation.
The phenomenon where the inflation rate is negative is called deflation.
Explain the term shoe-leather costs
Increased costs of transactions caused by inflation are known as shoe-leather costs, an allusion to the wear and tear caused by the extra running around that takes place when people are trying to avoid holding money.
However, compared to other inflation caused cost-factors, the shoe-leather costs are quite small.
Explain the term Menu Cost
In a modern economy, most of the things we buy have a listed price. Changing a listed price has a real cost, called a menu cost.
Explain the term unit-of-account costs
The unit-of-account costs of inflation are the costs arising from the way inflation makes money a less reliable unit of measurement.
Explain the terms nominal interest rate and real interest rate.
The nominal interest rate is the interest rate in dollar terms – for example, the interest rate on a student loan. The real interest rate is the nominal interest rate minus the rate of inflation.
Explain the term disinflation
The process of bringing the inflation rate down is called disinflation. This process is very costly!
Calculate the number of workers employed in each of the regions in July 2015 and July 016. use your answer to calculate the change in the total number of workers employed between July 2015 and July 2016.
For each reagion, calculate the growth in the labor force from July 2015 to July 2016.
Compute unemployment rates in the different regions of the country in July 2015 and July 2016.
What can you infer about the fall in unemployment rates over this period? Was it caused by a net gain in the number of jobs or by a large fall in the number of people seeking jobs?
Across all four regions there was both a net rise in the number of jobs and the number of people seeking jobs. But the number of jobs increased more than the labor force, and the unemployment rate fell.
The accompanying diagram shows the interest rate on one-year loans and inflation during 2001-2016 int the economy of Albernia. When would one-year loans have been especially attractive and why?
One-year loans in Albernia would have been especially attractive during the time inwhich the inflation rate exceeded the interest rate, corresponding to the years of 2004 and 2009. Whenever nominal interest rates are lower than inflation, borrowers are better off and lenders are worse off.
What is the equilibrium wage rate in Profunctia? At this wage rate, what are the level of employment, the size of the labor force, and the unemployment rate?
If the government of Profunctia sets a minimum wage equal to $12, what will be the level of employment, the size of the labor force, and the unemployment rate?
If unions bargain with the firms in Profunctia and set a wage rate equal to $14, what will be the level of employment, the size of the labor force, and the unemployment rate?
If the concern for retaining workers and encouraging high-quality work leads firms to set a wage rate equal to $16, what will be the level of employment, the size of the labor force, and the unemployment rate?
Explain the terms emplyoment and unemlployment
Employment is the number of people currently employed in the economy, either full time or part time. On the other hand, unemployment is defined as the total number of people who are actively looking for work but aren’t currently employed. That means, just because a person isn’t working doesn’t mean that we consider that person unemployed
Explain the term labor force and the labor force participation rate
A country’s labor force is the sum of employment and unemployment, whereas the labor force participation rate is the percentage of the population aged 16 or older that is in the labor force (either employed or unemployed).
Explain the term unemployment rate
The unemployment rate is the percentage of the total number of people in the labor force who are unemployed.
Explain why it is impossible, that the unemployment rate falls to zero.
If you are searching for work, it’s normal to take at least a few weeks to find a suitable job. Yet a worker who is quite confident of finding a job, but has not yet accepted a position, is counted as unemployed. As a consequence, the unemployment rate never falls to zero, even in boom times when jobs are plentiful.
Explain the term discourage workers
Discouraged workers are nonworking people who are capable of working but have given up looking for a job given the state of the job market (e.g. no suitable jobs are currently available). They don't get counted as unemployed!
Explain the term marginally attached workers
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. Discouraged workers are part of this group. They don't get counted as unemployed!
Explain the term underenmployed workers
Workers who would like to find full-time jobs buta re currently working part time because they can't find a suitable job. They don't get counted as unemployed!
The unemployment number usually quoted in the news media counts someone as unemployed only if he or she has been looking for work during the past __________.
The unemployment rate is an indicator of
During periods of economic expansion the unemployment rate usually
A period in which real GDP is growoing at a bleow-average rate and unemployment is rising is called a __________ or a __________.
jobless recovery or a growth recession
Explain the term job separation
terermination of employment that occurs because a worker is either fired or quits voluntarily.
Explain the term frictional unemployment
Frictional unemployment is unemployment due to the time workers spend in job search. It's basically the time between two jobs, when while the workers is not employed. A certain amount of frictional unemployment is inevitable due to the constant process of economic change.
Why coult a certain amount of frictional employment be a good thing in the economy?
Because the economy is more productive if workers take the time to find jobs that are well matched to their skills, and workers who are unemployed for a brief period while searching for the right job don’t experience great hardship.
Explain the term structural unemployment
Structural unemployment is unemployment that results when there are more people seeking jobs in a particular labor market than there are jobs available at the current wage rate.
Explain the term collective bargaining
Collective bargaining is a process of negotiation between epmployer and labor unions. Labor unions exercise bargaining power by threatening firms with a labor strike, a collective refusal of work. Unions also bargain over benefits, such as health care and pensions, which we can think of as additional wage.
Explain the term lockout
lockouts are periods in which union workers are locked out and rendered unemployed
Explain the term efficiency wages
Wages that employers set above the equilibrium wage rate as an incentive for their workers to perform better
What is the natrual rate of unemployment?
The natural rate of unemployment is the normal unemployment rate around which the actual unemployment rate fluctuates. It is the rate of unemployment that arises from the effects of frictional plus structural unemployment. Important to know is, that the natural rate of unemployment changes over time, and that it can be affected by government policies.
Natural Unemployment = Frictional Unemployment + Structural Unemployment
What is the cyclical unemployment?
Cyclical unemployment is the deviation of the actual rate of unemployment from the natural rate; that is, it is the difference between the actual and natural rates of unemployment.
Actual Unemployment = Natural Unemployment + Cyclical Unemployment
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Flashcards
Explain the term lockout
lockouts are periods in which union workers are locked out and rendered unemployed
Explain the term efficiency wages
Wages that employers set above the equilibrium wage rate as an incentive for their workers to perform better
What is the natrual rate of unemployment?
The natural rate of unemployment is the normal unemployment rate around which the actual unemployment rate fluctuates. It is the rate of unemployment that arises from the effects of frictional plus structural unemployment. Important to know is, that the natural rate of unemployment changes over time, and that it can be affected by government policies.
Natural Unemployment = Frictional Unemployment + Structural Unemployment
What is the cyclical unemployment?
Cyclical unemployment is the deviation of the actual rate of unemployment from the natural rate; that is, it is the difference between the actual and natural rates of unemployment.
Actual Unemployment = Natural Unemployment + Cyclical Unemployment
Explain the term real wage
A worker's real wage is the wage rate divided by the prce level. The inflation has no effect on the real wage!
Explain the term real income
Real incomes are incomes divided by the price level. The inflation has no effect on the real income!
How do you calculate the inflation rate?
inflation rate: the percent increase in the overall level of prices per year.
Explain the term deflation.
The phenomenon where the inflation rate is negative is called deflation.
Explain the term shoe-leather costs
Increased costs of transactions caused by inflation are known as shoe-leather costs, an allusion to the wear and tear caused by the extra running around that takes place when people are trying to avoid holding money.
However, compared to other inflation caused cost-factors, the shoe-leather costs are quite small.
Explain the term Menu Cost
In a modern economy, most of the things we buy have a listed price. Changing a listed price has a real cost, called a menu cost.
Explain the term unit-of-account costs
The unit-of-account costs of inflation are the costs arising from the way inflation makes money a less reliable unit of measurement.
Explain the terms nominal interest rate and real interest rate.
The nominal interest rate is the interest rate in dollar terms – for example, the interest rate on a student loan. The real interest rate is the nominal interest rate minus the rate of inflation.
Explain the term disinflation
The process of bringing the inflation rate down is called disinflation. This process is very costly!
Calculate the number of workers employed in each of the regions in July 2015 and July 016. use your answer to calculate the change in the total number of workers employed between July 2015 and July 2016.
For each reagion, calculate the growth in the labor force from July 2015 to July 2016.
Compute unemployment rates in the different regions of the country in July 2015 and July 2016.
What can you infer about the fall in unemployment rates over this period? Was it caused by a net gain in the number of jobs or by a large fall in the number of people seeking jobs?
Across all four regions there was both a net rise in the number of jobs and the number of people seeking jobs. But the number of jobs increased more than the labor force, and the unemployment rate fell.
The accompanying diagram shows the interest rate on one-year loans and inflation during 2001-2016 int the economy of Albernia. When would one-year loans have been especially attractive and why?
One-year loans in Albernia would have been especially attractive during the time inwhich the inflation rate exceeded the interest rate, corresponding to the years of 2004 and 2009. Whenever nominal interest rates are lower than inflation, borrowers are better off and lenders are worse off.
What is the equilibrium wage rate in Profunctia? At this wage rate, what are the level of employment, the size of the labor force, and the unemployment rate?
If the government of Profunctia sets a minimum wage equal to $12, what will be the level of employment, the size of the labor force, and the unemployment rate?
If unions bargain with the firms in Profunctia and set a wage rate equal to $14, what will be the level of employment, the size of the labor force, and the unemployment rate?
If the concern for retaining workers and encouraging high-quality work leads firms to set a wage rate equal to $16, what will be the level of employment, the size of the labor force, and the unemployment rate?
