Chapter 9 Flashcards
employed
if they worked during the week before the survey, or if they were temporarily away from their jobs because they were ill, on vacation, on strike, or for other reasons
unemployed
someone who is currently not at work but who is available for work and who has actively looked for work during the previous month
labor force
the sum of employed and unemployed workers in the economy
unemployment rate
the percentage of the labor force that is unemployed
discouraged workers
people who are available for work but have not looked for a job during the previous 4 weeks because they believe no jobs are available for them
unemployment rate equation
number of unemployed/labor force x 100
labor force participation rate
the percentage of the working age population in the labor force
labor force participation rate
labor force/working age population x 100
what are the three types of unemployment
frictional, structural, cyclical
frictional unemployment
short-term unemployment that arises from the process of matching workers with jobs, frictional unemployment increases economic efficiency
structural unemployment
long-term unemployment that arises from a persistent mismatch between the skills or attributes of workers and the requirement of jobs
cyclical unemployment
unemployment caused by a business cycle recession
full employment
when the only remaining unemployment is structural and frictional
natural rate of unemployment
the normal rate of unemployment consisting of frictional unemployment and structural unemployment
how can government policies increase the unemployment rat
by increasing the time workers devote to searching for jobs, by providing disincentives for firms to hire workers, or by keeping wages above their market level
opportunity cost
highest-valued alternative that you must give up to engage in that activity
efficiency wage
an above-market wage that a firm pays to increase workers’ productivity
price level
a measure of the average prices of goods and services in the economy
inflation rate
the percentage increase in the price level from one year to the next
consumer price index
a measure of the average change over time in the prices a typical urban family of four pays for the goods and services they purchase
market basket
a basket of 211 types of goods purchased by a typical family of four, used in CPI
CPI formula
CPI=expenditures in the current year/expenditures in the base year x 100
four biases that cause changes in the CPI to overstate the true inflation rate
substitution bias, increase in quality bias, new product bias, outlet bias
substitution bias
the assumption the consumers purchase the same amount of each product in the market basket
increase in quality bias
most products increase in quality so they get more expensive, so the recorded price increases overstate the pure inflation rate in some products
new product bias
the basket is only updated every ten years so new products are not added frequently
outlet bias
people buy cheaper stuff from outlets but the full price is counted
producer price index
an average of the prices received by producers of goods and services at all states of the production process
value in 2012 dollars =
value in 1987 dollars x (CPI in 2012)/(CPI in 1987)
nominal interest rate
that stated interest rate on a loan
real interest rate
the nominal interest rate minus the inflation rate
deflation
a decline in the price level
menu costs
the costs to firms of changing prices
problems with anticipated inflation rate
paper money loses some of its value and firms incur menu costs
problems with unanticipated inflation
the actual inflation rate can turn out to be different from the expected inflation rate, income is redistributed as some people gain and some people loose
