Chapter 5 Flashcards

1
Q

Unemployment rate formula

A

UR= (#unemployed/ #LF) x 100

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2
Q

Involuntary part time rate formula

A

IPR = (#involuntary part time/ # LF) x 100

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3
Q

Labour force participation rate formula

A

LFPR = (#LF/ # working age pop) x 100

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4
Q

Employment rate formula

A

ER = (# employed/ working age pop) x 100

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5
Q

Why is unemployment a problem

A

1.) lost incomes and production
2.) lost human capital

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6
Q

Labor Force categories (2 broadest)

A

1.) working age population (15 +)
2.) unable to work (too young, retired)

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7
Q

Working age population 2 categories

A

1.) In labour force
2.) Not in labour force

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8
Q

Labour force (definition)

A

The sum of people who are employed and unemployed

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9
Q

Labour force 2 categories

A

1.) unemployed
2.) employed

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10
Q

Employed 2 categories

A

1.) full time
2.) part time

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11
Q

Part time workers 2 categories

A

1.) voluntary part time
2.) involuntary part time

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12
Q

People counted as unemployed must be

A

available for work
and one of
1.) on temporary layoff with expectation of recall
2.) without work but has looked for work in past 4 weeks
3.) has a new job to start within 4 weeks

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13
Q

What are people in the working age population who are neither employed nor unemployed classified as?

A

not in the labour force

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14
Q

Unemployment rate definition

A

the percentage of people in the labour force who are unemployed

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15
Q

Involuntary part time rate definition

A

percentage of people in the labour force who work part time but want full time jobs

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16
Q

Labour force participation rate definition

A

the percentage of the working age population who are members of the labour force

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17
Q

employment rate definition

A

percentage of people working age who have jobs

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18
Q

wider definitions of unemployment bring in 3 types of underemployed labour excluded from the official measure, they are:

A

1.) discouraged searchers
2.) long term future starts
3.) involuntary part timers

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19
Q

discouraged searchers (definition)

A

a person who currently is neither working nor looking for work but has indicated that he or she wants a job, is available for work sometime in the recent past but has stopped looking because of repeated failure

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20
Q

Long term future starts (definition)

A

someone with a job that starts more than 4 weeks in the future (classified not in the labour force)

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21
Q

Involuntary part timers

A

part time workers who would like full time jobs and cant find them and not counted as such in the official stats

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22
Q

frictional unemployment (definition)

A

Unemployment that arises from normal labour turnover. This comes from people entering and leaving the labour force and from the ongoing creation and destruction of jobs
“good unemployment”

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23
Q

structural unemployment (definition)

A

the unemployment that arises when changes in technology or international competition change the skills needed to preform jobs or change the locations of the jobs

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24
Q

Cyclical unemployment (definition)

A

the higher than normal unemployment at a business cycle trough and the lower than normal unemployment at a business cycle peak

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25
"natural" unemployment (definition)
the unemployment arises from frictional and structural change when there is no cyclical unemployment - when all the unemployment is frictional or structural
26
Natural unemployment rate
natural unemployment as a percentage of the labour force
27
4 most important factors influencing the unemployment rate
1.) the age distribution of the population 2.) the scale of structural change 3.) the real wage rate 4.) unemployment benefits
28
the age distribution of population and the unemployment rate
an economy with a young population has a large number of new job seekers every year and has a high level of frictional unemployment. An economy with an ageing population has few new job seekers and a low level of frictional unemployment
29
the scale of structural change and the unemployment rate
when pace and volume of technological change is high more jobs are lost and the skill to preform them looses value
30
the real wage and the unemployment rate
The natural unemployment rate is influenced by the wage rate. High wages / high minimum wage puts real wages above the level that balances supply and demand in labour market. This creates a surplus of workers and unemployment arises
31
unemployment benefits and the unemployment rate
unemployment benefits increase the natural unemployment rate by lowering the opportunity cost of job search
32
Potential GDP (definition)
the quantity of real GDP at full employment
33
Output gap (definition)
the gap between real GDP and potential GDP
34
Price level (definition)
the average level of prices and the value of money
35
Inflation
a persistently rising price level
36
deflation
a persistently falling price level
37
2 reasons for interest in price level, inflation and deflation
1.) we want to measure the annual percentage change of the price level (inflation or deflation rate) 2.) we want to distinguish between the money values and real values of economic variables such as student loan
38
Why inflation and deflation are problems
Is only a problem when their are unexpected bursts 1.) redistributes income 2.) redistributes wealth 3.) lowers real GDP and employment 4.) diverts resources from production
39
Consumer price index - CPI (definition)
a measure of the average of the prices paid by urban consumers for a fixed basket of consumer goods and services - tells you about the value of money in your pocket
40
3 stages involving CPI
1.) Selecting the CPI basket 2.) Conducting the monthly price survey 3.) calculating the CPI
41
3 steps to calculate CPI
1.) find the cost of the CPI basket at base prices 2.) Find the cost of the CPI basket at current prices 3.) calculate the CPI for the base period and current period
42
CPI formula
CPI= (cost of CPI basket at current-period prices/cost of CPI at base period prices) x 100
43
inflation rate formula
inflation rate = (CPI this year - CPI last year/ CPI last year) x 100
44
High inflation vs High price level
- high inflation is when prices rise rapidly - high price level is after a sustained period of rising prices
45
4 main sources of bias in CPI
1.) new goods bias 2.) quality change bias 3.) commodity substitution bias 4.) outlet substitution bias
46
what is new goods bias
upward bias onto CPI caused by the good being newer and therefore more expensive (computer vs typewriter)
47
what is quality change bias
many goods get better every year, part of the rise in goods is the payment for improved quality but the CPI counts this as inflation
48
commodity substitution bias
CPI ignores substitution of goods
49
outlet substitution bias
when prices are higher people use discount stores more frequently
50
consequences of the bias
- distorts private contracts and increases government outlays - many private agreements such as wage contracts are linked to CPI - close to a 3rd of fed gov outlays are linked directly to CPI - small bias adds up
51
magnitude of bias
recent estimate by bank of Canada economist - about 0.6 % per year
52
2 alternative price indexes
1.) GDP deflator 2.) Chained price index for consumption
53
GDP deflator (definition)
an index of the prices of all the items included in GDP and is the ratio of nominal GDP to real GDP
54
GDP deflator (formula)
GDP Deflator = (nominal GDP/ Real GDP) x 100
55
chained price index for consumption- CPIC (definition)
an index of the prices of all the items included in consumption expenditure in GDP and is the ratio of nominal consumption expenditure to real consumption expenditure
56
chained price index - CIPC (formula)
CIPC = (nominal consumption expenditure/ real consumption expenditure) x 100
57
Core inflation rate
the inflation rate excluding volatile elements in attempts to do just that and reveal and underlying trend
58
real wage rate/price of labour (formula)
nominal wage/ GDP deflator
59
what real variable in macro is different
interest rate
60
real variable (formula)
nominal variable/ price level
61
Natural unemployment
frictional unemployment + structural unemployment
62
R1 are those who are...
unemployed for one year or more
63
R2 are those who are...
unemployed for 3 months or less
64
R5 adds
discouraged searchers
65
R7 adds
involuntary part timers to R4
66
What is Hyper-Inflation
Inflation of 50% a month or more