Measuring the Cost of Living 2 and Unemployment

Question 1

Define hyperinflation

Answer 1

a monthly inflation rate of 50%

Question 2

What is hyperinflation associated with?

Answer 2

a rapid increase in money supply

Question 3

What is the inflation target for NZ?

Answer 3

1-3%

Question 4

Whose job is it to control inflation?

Answer 4

the Reserve Bank

Question 5

Why do we not have a target of 0% inflation?

Answer 5

• 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

Question 6

Define unemployed

Answer 6

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

Question 7

What are some costs of unemployment?

Answer 7

• economic
• psychological
• social

Question 8

What is meant by the economic costs of unemployment?

Answer 8

lost wages and production, decreased taxes and increased taxes

Question 9

What are three general labour force classifications?

Answer 9

• employed
• unemployed
• not in the labour force

Question 10

A decrease in employment does not necessarily mean

Answer 10

an increase in unemployment

Question 11

What do we use to measure unemployment?

Answer 11

the household labour force survey

Question 12

What is the HLFS?

Answer 12

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

Question 13

What is HLFS used for?

Answer 13

as an indicator of the overall health of the economy and the unemployment rate as a key indicator

Question 14

How do we calculate the unemployment rate?

Answer 14

unemployed/labour force

Question 15

Is unemployment short or long term duration?

Answer 15

short

Question 16

What are four different types of unemployment?

Answer 16

• classical
• structural
• frictional
• cyclical

Question 17

Define structural unemployment

Answer 17

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

Question 18

Define frictional unemployment

Answer 18

This is associated with job search eg. when a short term contract finishes and you are looking for another job

Question 19

Define classical unemployment

Answer 19

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)

Question 20

Define cyclical unemployment

Answer 20

• 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