CH. 4 - Unemployment + Inflation Flashcards
CPI = Consumer Price Index
An average level of prices for G + S (typical) family consumes
Cost-Push Inflation
Inflation caused by an INCREASE in costs of production or profit: Affect Supply Side
Cyclical Unemployment
A result of a recessionary phase of the business cycle
Demand-Pull Inflation
Total demand for G + S exceeds country capacity to produce
Discouraged Worker
Cause: wants to work, but not actively seeking employment
Believes no opportunities exist
Employed
In labor force + hold paid employment
Frictional Unemployment
Cause: takes time to find first job OR move between jobs
Full Employment
Structural + Frictional unemployment BUT Cyclical unemployment = ZERO
GDP Deflator
Measure of price level of G + S included in GDP
GDP Gap
DIfference b/w Potential GDP + Actual GDP (real/nominal)
Inflation
A persistent rise in prices
Labor Force
The working age population including Employed + Unemployed
Natural Rate of Unemployment
Unemployment rate at full employment
Nominal Income
Present dollar value of persons income
OKUN’s LAW
1% cyclical unemployment = GDP 2.5% below potential
Output Costs
Costs of loss of output from inflation
Participation Rate
% of working age population that are in the labor force
Real Interest Rate
Rate of interest measured in constant dollars
Redistributive Costs
(inflation) costs shifted from one group to another
Structural Unemployment
Cause: mismatch in skills or location of jobs available
Unemployed
In labor force and actively seeking work, but do NOT hold paid employment
Unemployment
of people 15 yrs and older who are actively seeking work, but no employed
Unemployment Rate
% in labor force, but do not hold paid employment
Working Age Population
Total Population EXCEPT: under 15yrs, aboriginal reserves, mental/penal institutions/hospitals, armed forces
Equation: Labor Force Participation Rate
= Labor Force / Working Age Population x 100
Equation: Unemployment Rate
= # of Unemployed / Labor Force x 100
Equation: GDP Gap
= Actual GDP - Potential GDP (real/nominal)
= 2.5 x Cyclical Rate x Actual GDP
Equation: CPI
= (cost of basket GIVEN / cost of basket BASE) x 100
Equation: Inflation
= (Price index current - price index last) / (lasts) x 100
Equation: GDP Deflator
Nominal GDP
= Nominal GDP / Real GDP x 100
= Real GDP x (GDP deflator / 100)
Equation: Real Value ($B)
= (Nominal yr A / Price Index yr A) x Price Index yr B (base)
Equation: % change in real income
= % change in nominal - inflation rate
Equation: # of yrs to Double
= 70 / % growth rate
Equation: Nominal Interest Rate
Real Interest Rate
= Real Interest + Inflation
= Nominal - Inflation
