Exam #2 Review (Chapters 20, 21) Flashcards
current unemployment rate
7.9%
natural rate of employment
5-6%
4 kinds of unemployment
- season
- frictional
- structural
- cyclical
seasonal unemployment
certain profession’s demand for labor is seasonal
frictional unemployment
some people are looking for jobs and some firms are looking for peole
-in fluid markets, matching workers with jobs takes time
structural employment
a mismatch between workers and the skills/requirements for the jobs
-as the economy changes, we produce different goods and services which means we will have demand for different labor
cyclical unemployment
- unemployment caused by recession
- simply too few jobs around
how much of unemployment rate can be attested to natural rate of unemployment? (seasonal, frictional, structural)
5-6%
how much of unemployment can be attested to demand related? (cyclical)
2-3%
who calculates the rate of unemployment?
Bureau of Labor Statistics
According to BLS, who is part of the labor force?
Those who have looked for a job in the past four weeks, those employed
Who is not in labor force?
- housewife
- retired
- not looking
- looked for work 6 weeks ago, but not in past 4 weeks
- gave up looking two months ago
- doing odd jobs for cash
- under 16 years old
- full time students
How many Americans are currently employed?
143.3 million people employed
how many Americans have looked for work in the past four weeks?
12.3 million people
how many are not in the labor force?
89 million
Marginally Attached worker
have looked for work in the past year, but not in the past 4 weeks
discouraged workers
a subset of marginally attached
-gave up looking because they believe there are no jobs
working part time for economic reasons
you want a full-time job, all you can find is a part time job
-technically counted as employed
U6 Unemployment Formula
(Unemployed + marginally attached + part time for economic reasons) / (labor force + marginally attached)
Labor Force Participation Rate
of people who could be in the labor force, how many are in the labor force?
who isn’t counted as a part of the labor force participation rate?
- 16 and under
- in hospital or prison
- military
what is the current labor force participant rate for America?
63.6%
What do efficiency wages have to do with unemployment?
- wages paid exceed the going market wage
- this can technically create less jobs
- however, some argue that this keeps workers productive
Labor Unions and Unemployment
- union wages are above market equilibrium, and therefore, create labor surplus
- however, labor members have dropped significantly since 1950
minimum wages and Unemployment
-supposedly above the market equilibrium wage
-however, it is likely that the wage out there is higher than the minimum wage
-
unemployment insurance and unemployment
-we pay people not to work
-however, this allows people to find jobs suitable to their degree and it allows them to continue to buy goods (boosting economy)
-
inflation
continual rise in the overall price level
deflation
continual fall in the price level
two ways to measure inflation
- GDP Deflator
2. Consumer Price Index
GDP Deflator
- measures how GDP has grown from time to time
- however, it may not represent the price changes the average person experiences
Consumer Price Index
- released monthly
- measures how common goods prices change over time
who calculates the CPI?
BLS
Market Basket
set of goods and services that the CPI examines
Breakdown of Food and Beverage, Transportaion, and Housing by percentage according to Market basket
Housing (42%)
Transportation (17%)
Food and Beverage (15%)
what is the current base year for CPI?
1983
how much has CPI increased in the past year? how about past month?
- 7% in past year
- 0 in past month
whats the current value of CPI?
230
what is not included in CPI?
ONLINE GOODS
Billion Prices Project
project by MIT economist to track inflation of online goods
quality bias
over time, most products included in the CPI imporve in quality
-increases in the price of these things partly reflect the increased quality
substitution bias
consumers are likely to buy fewer of those products that increase most in price and more of those products that increase last in price
new product bias
new products introduced byeween updates of market basket were not included in the market basket
outlet bias
manh consumers have begun to increase their purchases from discount stores
-because BLS continued to collect price statistics from traditional full price retial stores, the CPI did not reflect the prices some consumers actually paid
nominal interest rate
stated rate of interest on a loan or financial asset
what is the current mortgage loan itnerest rate?
5.7%
what is the current US Treasury Bond interest rate?
2.1% annually
real interest rate
nominal rate minus inflation rate
REAL rate on mortgage loan
5.7%-1.7% or 4%
Real rate on your US Saving Bond
2.1%-1.7% OR .4%
nominal wages
what you get paid
real wages
real wages are adjusted for inflation
Long run economic growth
rising productivity, increases in standard of living
what are the three things that make a country’s GDP grow?
natural resources, labor supply, labor productivity
labor productivity
amount of output that can be produced by one worker, or one unit of labor
what is the key to growth?
capital is key to growth
demand for loanable funds
companies borrow money to purchase capital, when they borrow they pay an interest rate
when interest rates are high, there is _______ for loanable funds
less demand
when interest rates are lower, there is ______ for loanable funds
more demand
supply of loanable funds
money being borrowed
What are the four parts of the business cycle?
- expansion
- peak
- downturn
- trough
who decides where we are in the business cycle?
National Bureau of Economic Research
during a business cycle, unemployment will _________ during the recession and continue to _______ into the expansion
increase, increase
can unemployment rise during expansion?
YES
During a business cycle, ________ goods are much more effected than __________ goods
durable, nondurable
when we are shrinking, ______ goods production goes down
durable goods
when we are raising, ________ goods go up
durable goods
during the recession portion of the business cycle, inflation rate will ____________
decline
-but this is NOT the same thing as prices declining
