Chapter 6 Flashcards
Unemployment and Inflation
Unemployment
An economic condition that exists when workers are without jobs even though they are willing and able to work
Frictional Unemployment
Unemployment that results from people moving between jobs or entering or re-entering the labour force
Full Employment
A condition that prevails when the only unemployment is frictional and structural unemployment
Seasonal Unemployment
Unemployment caused by seasonal variations
Structural Unemployment
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
Technological Unemployment
A type of structural unemployment caused by the introduction of labour-saving equipment or methods of production
Cyclical Unemployment
Unemployment that arises because of declines in aggregate expenditure and aggregate output, such as during recessions
Unemployment Rate
The number of people unemployed expressed as a percentage of the labour force
Labour Force
The sum of all employed and all unemployed people who are willing and able to work
Capacity Utilization Rate
It shows the degrees to which firms use their factories and machinery
Labour Force Participation Rate
The labour force expressed as a percentage of the adult population
Employment Rate
It indicates the percentage of the labour force that is employed
Underemployment
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
Discouraged Workers
Workers who have abandoned the search for jobs because they are unable to find work
Potential GDP (Full-Employment Output)
The economy’s output at full employment
Actual Output
The level of output produced by the economy
Output Gap (Income Gap)
The difference between the potential output and the actual output of an economy
Okun’s Law
The assertion that real output falls by 3% for every 1% increase in the unemployment rate
Classical Economists
18th-19th and early 20th century economists who argued that the economy would automatically achieve full employment if wages and prices were flexible
Say’s Law
The assertion that the production of goods and services creates a market for those goods and services: supply creates its own demand
Keynesian Theory
This theory of unemployment states that unemployment can be caused by low aggregate expenditure
Inflation
A sustained increase in the average level of prices over time; a persistent increase in the cost of living
Rate Of Inflation
The rate of change of the average level of prices
Consumer Price Index
An index that measures changes in the prices of consumer goods
Producer Price Index
An index that measures changes in the prices of producer goods
Implicit Price Deflator (GDP Deflator)
An index that measures changes in the average level of prices of all final goods and services
Core Rate Of Inflation (Core CPI)
It exculdes volatile prices such as prices of gasoline and some food items
Chained Price Index For Consumption (CPIC)
It is an index based on the consumption expenditures reported in the national income accounts
Rule Of 70
A formula for determining the number of years required for a number to double for a given rate of change
Hyperinflation (Runaway Inflation)
An excessively high rate of inflation, usually 100% or more annually
Real Income
Nominal income adjusted for the rate of inflation
