Chapter 6 Flashcards
On what is the CPI based?
A representative group of goods and services (market basket) purchased by a typical household.
Price Level
Weighted average of the prices of all goods and services
PPI
Measures the cost of production of goods.
Prices measured at the point at which the goods enter the supply chain for the first time.
Includes capital and intermediate expenses
Base period
A year relatively to which the CPI/PPI is measured and calculated. The base period is always 100.
Inflation
Continued increase in the general price level.
Inflation rate
Growth rate of a price index.
Real income
The purchasing power of the income.
What one can afford to buy with the money.
Working age population
People 16 - 64 years of age.
Broad labor force
Those of the working-age labour force who are willing and able to work. (INCLUDES discouraged work-seekers)
Narrow labour force
Those of the working age labour force who are willing and able to work, excluding discouraged work-seekers.
Discouraged work-seekers
- those in the Broad labour force
- are unemployed in the reference period
- available to work but did not take active steps to find a work during the last 4 weeks before the interview.
Valid reasons for a why discouraged work-seeker is not actively searching:
- No jobs available in the area
- ## Unable to find a job that requires his skills
Broad Economically inactive population
Those too young/too old to work.
Those who form part of the working age but are not willing nor able to work.
Narrow definition of economically inactive population.
- Those too young/too old to work
- Those not willing or not able to work
- Discouraged workseekers
Employed
Those in the broad labour force who performed work for pay, profit or family, for at least one hour prior to the reference week or who were temporarily absent from work.
Five types of unemployment:
- Frictional unemployment
- Structural unemployment
- Natural unemployment
- Cyclical unemployment
- Seasonal unemployment
4 Categories of reasons for unemployment
- Job loser
- Job leaver
- Re-entrant
- New entrant
Full Employment
Where the unemployment rate equals natural unemployment
Gross Domestic Product
The final value of all goods and services produced for a country within a given period of time.
Gross Domestic Expenditure
Total value of spending on goods and services within the country.
Gross National Product
Total income earned by a nation’s permanent residents.
Net National Product
Total income from a nation’s residents minus losses from depreciation
(Net) National Income
Total income earned by a nation’s residents in the production of goods and services.
Personal Income
Income actually received by households
Personal Disposable Income
Income that households and non-corporate businesses have left after satisfying all their obligations to government.
Three methods to measure a nation’s income
- Income
- Expenditure
- Production
The circular flow:
Total expenditure = Total Income
(In a simple economy)
3 Sets of prices
Factor Costs
Basic Prices
Market Prices
Factor Costs
Amount received by factors of productio
Basic Prices
Amount received by producer
Market price
Amount payed by the consumer
Real GDP
A CPI-inflation adjusted nominal GDP
Economic growth
Indicator of an increase in economic activity (production)
Frictional Unemployment
Unemployment due to natural frictions in the economy
- caused by changing market conditions
- represented by qualified individuals with transferable skills who change jobs.
Structural Unemployment
Unemployment due to structural changes in the economy that:
- eliminate some jobs
- create jobs for which the unemployed are unqualified
Natural Unemployment
Unemployment caused by frictional and structural factors in the economy.
Natural Unemployment Rate = Frictional + Structural
Full Employment
The unemployment rate is equal to the natural unemployment rate.
Cyclical Unemployment Rate
Unemployment rate - natural unemployment rate
Employment (Absorption rate) =
n( employed ) / n( working-age ) x 100
Labour force participation rate (LFPR) =
n( labour force ) / n( working-age ) x 100
