Chapter 5 Flashcards
2 Problems of unemployment
lost income/ production
lost human capital
Working Age Population (WP)
total # 15yrs+
Labour Force (LF)
people employed + people unemployed
Employed (E)
people who have either a full or part-time job
Unemployed (U)
must be (1) available to work and one of the following:
-temporary layoff with expectation of return
-without work but has looked in the past 4 weeks
-has a new job start within 4 weeks
Not in Labor Force (NLF)
people neither employed nor unemployed
(full-time students, retirees, job start >4weeks away)
4 Labor Market Indicators
Unemployment Rate
Involuntary PT Rate
Labor Force Participation Rate
Employment Rate
Unemployment Rate
% of LF who are unemployed
Involuntary PT Rate
% of LF that work PT but want FT
Labor Force Participation Rate
% of WP who are part of LF
Employment Rate
% of WP that are employed
3 groups excluded from unemployed labor
1- discouraged workers
2- long-term future starts
3- involuntary PT workers
Frictional Unemployment (UF)
normal labor turnover from changing jobs, moving, etc. Normal and healthy!
Structural Unemployment (US)
changed in technology or international competition change required skills. Beyond anyone’s control!
Cyclical Unemployment (UC)
higher than normal unemployment do to a downturn in the economy (in recession). Unwanted & harmful!
Natural Unemployment
unemployment from only frictional and structural, NO CYCLICAL
Full Employment
when economy is neither in a recession or expansion. No cyclical unemployment (natural!)
Full Employment = Potential GDP
4 factors that influence natural U rate
1- age distribution (younger pop. = higher UF)
2- scale of structural change (technology)
3- real wage rate (if above equilibrium, supply > demand = higher U
4- unemployment benefits
Output Gap
gap between Actual Real GDP (YA) and Potential GDP (YP)
YA > YP = positive / inflationary gap
YA < YP = negative / recessionary gap
Full employment when YA = YP
Redistribution of Income
unexpected inflation = employees worse off (high prices and no wage raise)
unexpected deflation = employees better off (lower prices and no wage change)
Redistribution of Wealth
unexpected inflation- consumer wins, bank loses
unexpected deflation- consumer loses, bank wins
4 problems of inflation/ deflation
redistribution of income
redistribution of wealth
lowers Real GDP & employment
diverts resources from production
hyperinflation
inflation rate of 50%+ a month
Consumer Price Index (CPI)
measure of the average prices paid by urban consumers for a fixed basket of goods/services
(how much your money will buy)
GDP Deflator
index of prices of ALL items in GDP (not just 80,000 items in the basket) USES CURRENT YEAR
