CH. 4 - Unemployment + Inflation

Question 1

CPI = Consumer Price Index

Answer 1

An average level of prices for G + S (typical) family consumes

Question 2

Cost-Push Inflation

Answer 2

Inflation caused by an INCREASE in costs of production or profit: Affect Supply Side

Question 3

Cyclical Unemployment

Answer 3

A result of a recessionary phase of the business cycle

Question 4

Demand-Pull Inflation

Answer 4

Total demand for G + S exceeds country capacity to produce

Question 5

Discouraged Worker

Answer 5

Cause: wants to work, but not actively seeking employment

Believes no opportunities exist

Question 6

Employed

Answer 6

In labor force + hold paid employment

Question 7

Frictional Unemployment

Answer 7

Cause: takes time to find first job OR move between jobs

Question 8

Full Employment

Answer 8

Structural + Frictional unemployment BUT Cyclical unemployment = ZERO

Question 9

GDP Deflator

Answer 9

Measure of price level of G + S included in GDP

Question 10

GDP Gap

Answer 10

DIfference b/w Potential GDP + Actual GDP (real/nominal)

Question 11

Inflation

Answer 11

A persistent rise in prices

Question 12

Labor Force

Answer 12

The working age population including Employed + Unemployed

Question 13

Natural Rate of Unemployment

Answer 13

Unemployment rate at full employment

Question 14

Nominal Income

Answer 14

Present dollar value of persons income

Question 15

OKUN’s LAW

Answer 15

1% cyclical unemployment = GDP 2.5% below potential

Question 16

Output Costs

Answer 16

Costs of loss of output from inflation

Question 17

Participation Rate

Answer 17

% of working age population that are in the labor force

Question 18

Real Interest Rate

Answer 18

Rate of interest measured in constant dollars

Question 19

Redistributive Costs

Answer 19

(inflation) costs shifted from one group to another

Question 20

Structural Unemployment

Answer 20

Cause: mismatch in skills or location of jobs available

Question 21

Unemployed

Answer 21

In labor force and actively seeking work, but do NOT hold paid employment

Question 22

Unemployment

Answer 22

of people 15 yrs and older who are actively seeking work, but no employed

Question 23

Unemployment Rate

Answer 23

% in labor force, but do not hold paid employment

Question 24

Working Age Population

Answer 24

Total Population EXCEPT: under 15yrs, aboriginal reserves, mental/penal institutions/hospitals, armed forces

Question 25

Equation: Labor Force Participation Rate

Answer 25

= Labor Force / Working Age Population x 100

Question 26

Equation: Unemployment Rate

Answer 26

= # of Unemployed / Labor Force x 100

Question 27

Equation: GDP Gap

Answer 27

= Actual GDP - Potential GDP (real/nominal)

= 2.5 x Cyclical Rate x Actual GDP

Question 28

Equation: CPI

Answer 28

= (cost of basket GIVEN / cost of basket BASE) x 100

Question 29

Equation: Inflation

Answer 29

= (Price index current - price index last) / (lasts) x 100

Question 30

Equation: GDP Deflator

Nominal GDP

Answer 30

= Nominal GDP / Real GDP x 100

= Real GDP x (GDP deflator / 100)

Question 31

Equation: Real Value ($B)

Answer 31

= (Nominal yr A / Price Index yr A) x Price Index yr B (base)

Question 32

Equation: % change in real income

Answer 32

= % change in nominal - inflation rate

Question 33

Equation: # of yrs to Double

Answer 33

= 70 / % growth rate

Question 34

Equation: Nominal Interest Rate

Real Interest Rate

Answer 34

= Real Interest + Inflation

= Nominal - Inflation