Macroeconomics - CH23 Unemployment and Inflation

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!

jobless recovery or a growth recession

terermination of employment that occurs because a worker is either fired or quits voluntarily.

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.

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.

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.

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.

lockouts are periods in which union workers are locked out and rendered unemployed 

Wages that employers set above the equilibrium wage rate as an incentive for their workers to perform better

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

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

A worker's real wage is the wage rate divided by the prce level. The inflation has no effect on the real wage!

Real incomes are incomes divided by the price level. The inflation has no effect on the real income!

inflation rate: the percent increase in the overall level of prices per year.

The phenomenon where the inflation rate is negative is called deflation. 

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.

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.

The unit-of-account costs of inflation are the costs arising from the way inflation makes money a less reliable unit of measurement.

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.

The process of bringing the  inflation rate down is called disinflation. This process is very costly!

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.

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.