Chapter 2

Question 1

Explain why unemployment is a problem

Answer 1

1. Causes a loss of income and lost production
   And lost production means lower consumption
   And a lower investment in capital
   Which lowers the living standard in both the present and future
2. Destroying h7man capital
   Prolonged unemployment permanently destroys a persons job prospects by destroying
   Human capital

Question 2

Define unemployment rate

Answer 2

This is the percentage of the labor force that is unemployed

Question 3

Define the employment to population ratio

Answer 3

Is the percentage of the working age
Population with jobs

Question 4

Define the labor participation rate

Answer 4

Is the percentage of the working age population
Who are part of the labor force

Question 5

What is price level

Answer 5

The average level of prices and the value of money

Question 6

What is deflation

Answer 6

Is a persistently falling price level

Question 7

What is inflation

Answer 7

Is a persistently rising price level

Question 8

How does the unexpected inflation redistributes incom

Answer 8

Unexpected inflation doesn’t nit immediate raise wages
And workers are worse off because they can buy less
And employers are better off because their profits rise

Question 9

How does the unexpected deflation redistributes income

Answer 9

n unexpected burst of deflation - wage rates don’t fall but prices fall
Workers are better off because their fixed wages can buy more than
And employers are worse off with lower profit

Question 10

How does the unexpected inflation redistributes wealth

Answer 10

When a loan is taken and unexpected burst inflation, the borrow wins and the lender loses

Question 11

How does unexpected inflation or deflation diverts resources from production

Answer 11

Turns the economy into a casino and diverts resources from activities to forecasting inflation