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Macroeconomics > Chapter 5 > Flashcards

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
Q

“natural” unemployment (definition)

A

the unemployment arises from frictional and structural change when there is no cyclical unemployment - when all the unemployment is frictional or structural

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26
Q

Natural unemployment rate

A

natural unemployment as a percentage of the labour force

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27
Q

4 most important factors influencing the unemployment rate

A

1.) the age distribution of the population
2.) the scale of structural change
3.) the real wage rate
4.) unemployment benefits

28
Q

the age distribution of population and the unemployment rate

A

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
Q

the scale of structural change and the unemployment rate

A

when pace and volume of technological change is high more jobs are lost and the skill to preform them looses value

30
Q

the real wage and the unemployment rate

A

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
Q

unemployment benefits and the unemployment rate

A

unemployment benefits increase the natural unemployment rate by lowering the opportunity cost of job search

32
Q

Potential GDP (definition

A

the quantity of real GDP at full employment

33
Q

Output gap (definition)

A

the gap between real GDP and potential GDP

34
Q

Price level (definition)

A

the average level of prices and the value of money

35
Q

Inflation

A

a persistently rising price level

36
Q

deflation

A

a persistently falling price level

37
Q

2 reasons for interest in price level, inflation and deflation

A

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
Q

Why inflation and deflation are problems

A

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
Q

Consumer price index - CPI (definition)

A

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
Q

3 stages involving CPI

A

1.) Selecting the CPI basket
2.) Conducting the monthly price survey
3.) calculating the CPI

41
Q

3 steps to calculate CPI

A

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
Q

CPI formula

A

CPI= (cost of CPI basket at current-period prices/cost of CPI at base period prices) x 100

43
Q

inflation rate formula

A

inflation rate = (CPI this year - CPI last year/ CPI last year) x 100

44
Q

High inflation vs High price level

A
  • high inflation is when prices rise rapidly
  • high price level is after a sustained period of rising prices
45
Q

4 main sources of bias in CPI

A

1.) new goods bias
2.) quality change bias
3.) commodity substitution bias
4.) outlet substitution bias

46
Q

what is new goods bias

A

upward bias onto CPI caused by the good being newer and therefore more expensive (computer vs typewriter)

47
Q

what is quality change bias

A

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
Q

commodity substitution bias

A

CPI ignores substitution of goods

49
Q

outlet substitution bias

A

when prices are higher people use discount stores more frequently

50
Q

consequences of the bias

A
  • 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
Q

magnitude of bias

A

recent estimate by bank of Canada economist - about 0.6 % per year

52
Q

2 alternative price indexes

A

1.) GDP deflator
2.) Chained price index for consumption

53
Q

GDP deflator (definition)

A

an index of the prices of all the items included in GDP and is the ratio of nominal GDP to real GDP

54
Q

GDP deflator (formula)

A

GDP Deflator = (nominal GDP/ Real GDP) x 100

55
Q

chained price index for consumption- CPIC (definition)

A

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
Q

chained price index - CIPC (formula)

A

CIPC = (nominal consumption expenditure/ real consumption expenditure) x 100

57
Q

Core inflation rate

A

the inflation rate excluding volatile elements in attempts to do just that and reveal and underlying trend

58
Q

real wage rate/price of labour (formula)

A

nominal wage/ GDP deflator

59
Q

what real variable in macro is different

A

interest rate

60
Q

real variable (formula)

A

nominal variable/ price level

61
Q

Natural unemployment

A

frictional unemployment + structural unemployment

62
Q

R1 are those who are…

A

unemployed for one year or more

63
Q

R2 are those who are…

A

unemployed for 3 months or less

64
Q

R5 adds

A

discouraged searchers

65
Q

R7 adds

A

involuntary part timers to R4

66
Q

What is Hyper-Inflation

A

Inflation of 50% a month or more

Macroeconomics (12 decks)

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