Macroeconomics (Unemployment and Inflation) – Flashcards
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the BLS uses this survey to collect data needed to compute the unemployment rate, interviewing 60,000 households about the employment of everyone in the household
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household survey
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the sum of the employed and unemployed workers in the economy
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labor force
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the percentage of labor force that is employed
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unemployment rate
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people who are available for work but have not looked for a job during the previous 4 weeks because they believe no jobs are available for them
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discouraged workers
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How do you calculate "unemployment rate"?
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(number of unemployed)/(labor force)x100
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How do you calculate "labor force participation rate"?
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(labor force)/(working-age population)x100
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How do you calculate "employment-population ratio"?
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(employment)/(working-age population)x100
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What are 2 problems that usually lead to the BLS understating the degree of joblessness in the economy?
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1. not counting discouraged workers and unemployed 2. counting people as employed who are working part time, although they'd rather be working full time
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What is 1 important trend in labor force participation rate?
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1. the rising labor force participation rate of adult women 2. falling participation rate of adult men
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what survey provides information on the total number of persons who are employed and on a company payroll
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establishment survey or payroll survey
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What is one important fact about employment that is not very well known?
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the U.S. economy creates and destroys millions of jobs a year
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short term unemployment that arises from the process of matching workers with jobs
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frictional unemployment
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what type of frictional unemployment refers to unemployment due to factors such as weather, variations in tourism, and other calendar-related event
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seasonal unemployment
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would eliminating all frictional unemployment be good for the economy?
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no, some frictional unemployment actually increase economic efficiency
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unemployment that arises from a persistent mismatch between the skills and attributes of workers and the requirements of jobs
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structural unemployment
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unemployment caused by a business cycle recession
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cyclical unemployment
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Even though cyclical employment will drop to zero as the economy moves through the expansion phase of the business cycle, why won't the unemployment rate become zero?
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because of frictional and structural unemployment
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When the only remaining unemployment is structural and frictional unemployment, the economy is said to be at ________________
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full employment
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the normal rate of unemployment, consisting of frictional unemployment plus structural unemployment
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natural rate of unemployment
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Why are unemployment rates higher Canada and the countries of Western Europe?
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because workers are eligible to receive unemployment payments for a year or more, and the payments may equal 70% to 80% of their previous wage; unemployed workers search longer for jobs and therefore, the unemployment rates in those countries tend to be higher than in the U.S.
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Why will some workers be unemployed who would have been employed if there were no minimum wage (making the unemployment rate higher with minimum wage)?
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when minimum wage is set above the market wage. the quantity of labor supplied will be greater than quantity of labor demanded
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Does the above market wage created by unionized industries increase overall unemployment rate in the economy?
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no, because only 9 percent of workers outside the govt. sector are unionized
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Why would a company pay an efficiency wage?
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by paying a wage above market wage a firm raises the costs to workers of losing their jobs because many alternative jobs will pay only the market wage, the increase in productivity that results from paying the high wage can more than offset the extra cost of the age, thereby lowering the firm's cost of production
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a higher than market wage that a firm pays to increase worker productivity
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efficiency wage
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because efficiency wage, minimum wage laws, and unions are above the market wage what happens?
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quantity of labor supplied is greater than quantity of labor demanded
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a measure of the average prices of goods and services in the economy
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price level
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the percentage increase in the price level from 1 year to the next
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inflation rate
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is an average of the prices of the goods and services purchased by the typical urban family of 4
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Consumer Price Index (CPI)
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What is the most widely used measure of inflation?
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CPI
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What are the 4 biases that cause changes in the CPI to overstate the true inflation rate:
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1. Substitution bias 2. Increase in quality bias 3. New Product bias 4. Outlet bias
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the BLS assumes that each month, consumers purchase the same amount of each product int he market basket
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Substitution bias
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Over time, most products included in the CPI improve in quality: increases in the prices of these products partly reflect their improved quality and partly are pure inflation
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increase in quality bias
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For many years, the BLS updated the market basket of good used in computing the CPI only every 10 years. So, new products introduced between updates were not included in the market basket
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New Product Bias
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Because the BLS continued to collect price statistics from traditional full-price retail stores, the CPI did not reflect the prices some consumers actually paid
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Outlet bias
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an average of the prices received by producers of goods and services at all stages of the production process
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producer price index (PPI)
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the cost of borrowing funds, expressed as a percentage of the amount borrowed
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interest rate
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the stated interest rate on a loan
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nominal interest rate
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equation for "Real Interest Rate"?
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Nominal Interest Rate - Inflation Rate
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When inflation rate is low, like it has been since the 1990, the gap between the nominal and real interest rates is _____________
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small
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When the inflation rate is high, the gap between the nominal and real interest rates is ______________
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large
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a negative inflation rate, occurs on the rare occasions when the price level falls
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deflation
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What is reason some people dislike inflation?
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1. some people find their incomes rising more slowly than the rate of inflation, and their purchasing power will fall (people on fixed incomes)
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the costs to firms of changing prices
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menu costs
