Chapter 6

Question 1

Unemployment

Answer 1

An economic condition that exists when workers are without jobs even though they are willing and able to work

Question 2

Frictional Unemployment

Answer 2

Unemployment that results from people moving between jobs or entering or re-entering the labour force

Question 3

Full Employment

Answer 3

A condition that prevails when the only unemployment is frictional and structural unemployment

Question 4

Seasonal Unemployment

Answer 4

Unemployment caused by seasonal variations

Question 5

Structural Unemployment

Answer 5

Unemployment that is caused by a mismatch between the types of skills that unemployed workers possess and the types of workers that employers would like to hire

Question 6

Technological Unemployment

Answer 6

A type of structural unemployment caused by the introduction of labour-saving equipment or methods of production

Question 7

Cyclical Unemployment

Answer 7

Unemployment that arises because of declines in aggregate expenditure and aggregate output, such as during recessions

Question 8

Unemployment Rate

Answer 8

The number of people unemployed expressed as a percentage of the labour force

Question 9

Labour Force

Answer 9

The sum of all employed and all unemployed people who are willing and able to work

Question 10

Capacity Utilization Rate

Answer 10

It shows the degrees to which firms use their factories and machinery

Question 11

Labour Force Participation Rate

Answer 11

The labour force expressed as a percentage of the adult population

Question 12

Employment Rate

Answer 12

It indicates the percentage of the labour force that is employed

Question 13

Underemployment

Answer 13

A situation in which workers accept low-paying jobs or part-time jobs because they cannot find a full-time job consistent with their qualifications

Question 14

Discouraged Workers

Answer 14

Workers who have abandoned the search for jobs because they are unable to find work

Question 15

Potential GDP (Full-Employment Output)

Answer 15

The economy’s output at full employment

Question 16

Actual Output

Answer 16

The level of output produced by the economy

Question 17

Output Gap (Income Gap)

Answer 17

The difference between the potential output and the actual output of an economy

Question 18

Okun’s Law

Answer 18

The assertion that real output falls by 3% for every 1% increase in the unemployment rate

Question 19

Classical Economists

Answer 19

18th-19th and early 20th century economists who argued that the economy would automatically achieve full employment if wages and prices were flexible

Question 20

Say’s Law

Answer 20

The assertion that the production of goods and services creates a market for those goods and services: supply creates its own demand

Question 21

Keynesian Theory

Answer 21

This theory of unemployment states that unemployment can be caused by low aggregate expenditure

Question 22

Inflation

Answer 22

A sustained increase in the average level of prices over time; a persistent increase in the cost of living

Question 23

Rate Of Inflation

Answer 23

The rate of change of the average level of prices

Question 24

Consumer Price Index

Answer 24

An index that measures changes in the prices of consumer goods

Question 25

Producer Price Index

Answer 25

An index that measures changes in the prices of producer goods

Question 26

Implicit Price Deflator (GDP Deflator)

Answer 26

An index that measures changes in the average level of prices of all final goods and services

Question 27

Core Rate Of Inflation (Core CPI)

Answer 27

It exculdes volatile prices such as prices of gasoline and some food items

Question 28

Chained Price Index For Consumption (CPIC)

Answer 28

It is an index based on the consumption expenditures reported in the national income accounts

Question 29

Rule Of 70

Answer 29

A formula for determining the number of years required for a number to double for a given rate of change

Question 30

Hyperinflation (Runaway Inflation)

Answer 30

An excessively high rate of inflation, usually 100% or more annually

Question 31

Real Income

Answer 31

Nominal income adjusted for the rate of inflation