Macro Quiz 3 Flashcards
Definition of underemployment
When people work part-time or below their skill level
Unemployment equation
of unemployed / labor force
Structural unemployment
When workers have skills that are not in demand
Cyclical unemployment
When workers have skills that are in demand but aren’t employed
Frictional unemployment
When workers are in between jobs
Seasonal unempployment
When workers only work in certain times of the year
Market Labor Rigidities
Minimum wage (wages > equilibrium –> unemployment) and employment protection (costly firing –> caution when hiring –> unemployment)
Inflation
Increase of prices of goods and services, which leads to the decrease of the value of the currency in use
Deflation
Decrease of prices of goods and services, which leads to the increase of the value of the currency in use
Disinflation
The decrease of the the inflation rate
CPI
Consumer Price Index - the measure of the cost of living for the average household, comparing a basket of goods and services in a year to a base year
Purchasing Power
How easy it is to buy goods or services proportionate to the earnings of a country
Redistribution effects of inflation
People who have fixed debts are the winners; Uncertainty (decrease in investments, reducing AD, increasing inflation); Money illusion (relative value of money creates false sense of security)
Redistribution effects of deflation
People who have or earn a fixed amount of money are winners; Deferred spending (abstention from spending creates further deflation); Deflationary spiral (real debt increases, leading to business bankruptcy and bank bankruptcy)
Why is inflation self-fulfilling?
If people think that there is going to be an fast increase in inflation, they will purchase quickly in order to buy things at the current price, and since their is more goods and services being bought, their prices increase and the in
