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econ1021 - macro > Topic 2 - Inflation and Unemployment > Flashcards

Topic 2 - Inflation and Unemployment Flashcards

1
Q

What is unemployment

A
  • Refers to people who are willing and able to work but don’t currently have a job
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2
Q

Why is unemployment a serious problem

A
  • Lost income and production
  • Fall in human capital
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3
Q

What is human capital

A
  • Refers to the knowledge and skills of workers that have economic value
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4
Q

Why is unemployment harmful to human capital

A
  • The longer the spell of unemployment the more human capital will be lost
  • Unemployed workers are not actively using a large portion of their knowledge and skills
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5
Q

What does the Labour Force Survey (LFS) provide

A
  • Provides a detailed picture of UK unemployment at the national and regional level
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6
Q

How does the LFS divide the population into 2 groups

A
  • Working-Age population: the number of people aged 15-64 who are not in prison, hospital or some other form of institutional care
  • People under 16 or in institutional care
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7
Q

How is the working-age population divided into 2 groups

A
  • Workforce (Economically Active): Have a job or are willing and able to take a job
  • Economically Inactive: Do not want a job
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8
Q

What is the textbook definition of unemployment

A
  • A person must be available for work within 2 weeks and 1 of the next 3
  • Without work but seeked work in the last 4 weeks
  • Waiting to start a new job in 30 days
  • Waiting to be called back to a job from which they were laid off
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9
Q

What three labour market indicators do the Office for National Statistics (ONS) calculate

A
  • The unemployment rate
  • The employment rate
  • The economic activity rate
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10
Q

What is the unemployment rate and how is it calculated

A
  • The % of the workforce that is unemployed
  • Unemployment Rate = (Number unemployed / Workforce) x 100
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11
Q

What is the employment rate and how is it calculated

A
  • The percentage of the working-age population who have jobs
  • Employment Rate = (Number employed / Working-age population) x 100
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12
Q

What is the economic activity rate and how is it calculated

A
  • The percentage of the working-age population who are economically active
  • Economic Activity Rate = (Workforce / Working-age population) x 100
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13
Q

What are the 4 different types of unemployment

A
  • Frictional Unemployment: Between jobs or searching for a new job
  • Structural Unemployment: Technology or competition changes the skills to perform jobs or their location
  • Cyclical Unemployment: Changes in unemployment linked to the stages of the business cycle
  • Natural Unemployment: Unemployment that arises when cyclical unemployment is zero. Either structural or frictional
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14
Q

What is inflation

A
  • A sustained rise in the price level over time
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15
Q

How is inflation calculated

A
  • ((P - Ppast) / Ppast) * 100
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16
Q

What do inflation and deflation indicate

A
  • Inflation: Demand > Production
  • Deflation: Demand < Production
17
Q

Why is low inflation desirable

A
  • The inflation tax
  • Redistribution of wealth
  • The danger of deflation
18
Q

What is inflation tax

A
  • The real value of savings decrease
  • High inflation erodes purchasing power
19
Q

How does is redistribution of wealth affected by inflation

A
  • Inflation redistributes wealth from lenders to borrowers
  • If you owed £2000 and there was high inflation you would owe less
20
Q

Why is deflation dangerous

A
  • If prices are falling, consumption and investment get postponed
  • This can mean economic stagnation
21
Q

What are the two main measures of UK household inflation

A
  • Retail Prices Index (RPI)
  • Consumer Prices Index (CPI)
22
Q

How is the retail price index calculated

A
  • Find the cost of the basket at base-period prices
  • Find the cost of the basket at current-period prices
  • Calculate the price index
  • Index = 100 x (current prices / base prices)
23
Q

What is the GDP Deflator and how is it calculated

A
  • An index of the prices of all the items in GDP
  • Includes goods and services in I and G
  • GDP Deflator = 100 x (Nomial GDP / Real GDP)
  • Only includes goods and services produced domestically
24
Q

What is the condition for hyperinflation and its affect

A
  • Inflation is 50% or more per month
  • Money loses value rapidly and economy grinds to a halt
25
Q

How do we calculate Inflation from the GDP deflator

A
  • ((GDP Deflator year 2 - GDP Deflator year 1) / GDP Deflator year 1) * 100
26
Q

How is the number of people in the workforce calculated

A
  • Employed + Unemployed
27
Q

Do CPI and RPI include house prices

A
  • Neither CPI or RPI include house prices
  • RPI includes the costs of home ownership not prices directly

econ1021 - macro (8 decks)

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