Measuring the Cost of Living 2 and Unemployment Flashcards
Define hyperinflation
a monthly inflation rate of 50%
What is hyperinflation associated with?
a rapid increase in money supply
What is the inflation target for NZ?
1-3%
Whose job is it to control inflation?
the Reserve Bank
Why do we not have a target of 0% inflation?
- inflation measures (such as CPI) tend to overstate inflation so a measured zero rate for inflation may actually be deflationary
- workers resist a fall in wages so a fall in “real” wages can be achieved by raising nominal wages by less than inflation because if wages stay the same but there is inflation, the real wage is going down
- in a deep recession, we should maybe need to cut interest rates, even push them to negative levels in real terms which can only be done if there is a positive rate of inflation
Define unemployed
All people in the working age population who during the reference week were without a paid job, available for work and had either actively sought a job in the last four weeks ending in the reference week, or had a job to start in the next four weeks
What are some costs of unemployment?
- economic
- psychological
- social
What is meant by the economic costs of unemployment?
lost wages and production, decreased taxes and increased taxes
What are three general labour force classifications?
- employed
- unemployed
- not in the labour force
A decrease in employment does not necessarily mean
an increase in unemployment
What do we use to measure unemployment?
the household labour force survey
What is the HLFS?
the nationwide, quarterly survey that takes a representative sample of 15,000 households (about 30,000 people) which measures
- the number of employed and unemployed people
- the number who are not in the labour force
- hours worked
and more
What is HLFS used for?
as an indicator of the overall health of the economy and the unemployment rate as a key indicator
How do we calculate the unemployment rate?
unemployed/labour force
Is unemployment short or long term duration?
short
What are four different types of unemployment?
- classical
- structural
- frictional
- cyclical
Define structural unemployment
This is due to a mis-match between skills that are required and those possessed by workers. This could be due to a mismatch in skills or a mismatch in located
Define frictional unemployment
This is associated with job search eg. when a short term contract finishes and you are looking for another job
Define classical unemployment
This is when the minimum wage is higher than the market clearing price and so the supply is higher than the demand for workers and so there is a surplus (ie. people are unemployed)
Define cyclical unemployment
- associated with economic downturn
- not enough aggregate demand in the economy to provide jobs for everyone who wants to work
- demand for most goods and services falls, less production is needed, consequently fewer workers are needed
- wages are sticky and do not fall to meet the equilibrium level
