Chapter 9: Inflation and Unemployment

Question 1

What is inflation

Answer 1

A general increase in the price of goods and services in a economy

Question 2

Consumer price index

Answer 2

Used to measure the overall changes in prices, represents a “shopping basket” of consumer products

Question 3

In a consumer price index, there are 30 milkshakes, 50 hamburgers, and 70 french fries. What is the item weight of all items?

Answer 3

20% Milkshakes, 33% Hamburgers, 47% French Fries

Question 4

Suppose in a CPI at 100, the sum of all prices rises from $65 to $73, what is the inflation rate? How much has the consumer price index moved by

Answer 4

12.3%, 100->112

Question 5

What is nominal and real income?

Answer 5

Nominal Is income at current dollars, Real is income adjusted for inflation

Question 6

If a workers income raises from $1000 to $1200, and the CPI also raises from 100 to 130, what is the workers real income?

Answer 6

$923

Question 7

Relationship between CPI and purchasing power

Answer 7

Higher the CPI, lower the purchasing power

Question 8

Limitations of CPI

Answer 8

Doesn’t account for consumer differences in spending, spending patterns, or quality changes

Question 9

GDP Deflator

Answer 9

measures price change for all goods and services produced in an economy and weights them in terms of the economies total output

Question 10

How is GDP Deflator Calculated?

Answer 10

Divide the output in dollars in the year(Ex.2023( with the output in dollars of the reference year(Ex.2021). Multiply by 100

Question 11

Real GDP vs Nominal GDP

Answer 11

Real GDP is GDP expressed in constant dollars, Nominal GDP is GDP expressed in current dollars

Question 12

When are lenders worse off or better off when giving loans

Answer 12

when the rate of inflation is more than expected, lenders are worse off, if less than expected lenders are better off

Question 13

Interest premium

Answer 13

The percentage built into nominal interest rate to account for rise in inflation

Question 14

Who is included in the labour force population

Answer 14

All Canadians above 15 years of age except for first nations on reserves, military, or those in institutions like jail or medical

Question 15

Who is included in labour force

Answer 15

Those in the labour force population who are employed or looking for jobs

Question 16

Participation rate

Answer 16

Labour force/labour force population

Question 17

What are some drawbacks of Official unemployment rate

Answer 17

Cant account for underemployment; misuse of skills, discouraged workers, and dishonesty in statistsics

Question 18

What are the types of unemployment

Answer 18

Frictional, cyclical, seasonal, and structural

Question 19

What is Frictional Unemployment?

Answer 19

Workers who are in-between jobs who first time workers looking for their first job

Question 20

What is cyclical unemployment?

Answer 20

unemployment due to economies fluctuations in output; hard times means less jobs

Question 21

What is Structural unemployment?

Answer 21

unemployment due to mismatch between jobs and people

Question 22

What is Seasonal Unemployment

Answer 22

Unemployment due to the seasonal nature of certain jobs

Question 23

Define Full employment?

Answer 23

The highest reasonable expectation of employment for the economy as a whole, incorporates a natural unemployment rate

Question 24

What is Okun’s Law

Answer 24

For every 1% that the unemployment rate exceeds the natural unemployment rate, the gap between potential output and actual output increases by 2.5%

Question 25

What is the real output associated with full employment?

Answer 25

potential output