Unemployment and Inflation Flashcards
requirements to be considered unemployed
- not worked in the week prior
- actively seeking work
- willing to start immediately
describe the meaning of employed
worked at least 1 hour in the week before and got paid for it
how to calculate the unemployment rate?
- no. ue/ LF*100
calculate Labour Force Participation
- LF/ working age pop*100
labour force
unemployed plus employed
Problems with measuring the Unemployment rate
- recession; less people actively seek work decreasing workforce and therefore unemployment
- Part time work counted as employed but not enough hours; underemployed
- illegal work
- people fill surveys incorrectly
costs of unemployment to the economy
- gdp decrease
- loss human capita; skills may deteriorate
- retraining cost
costs of unemployment to the government
- loss of tax
- social welfare payments
costs of unemployment to the individual
- loss of income
- self esteem
types of unemployment
- cyclical
- structural
- frictional
cyclical
causes by business cycle; contraction and recession
structural
skills of the people may not match the skills needed in the economy
frictional
seasonal
people in between jobs
or graduated people looking for work
measuring inflation
CPI
GDP deflator
PPI
CPI
Consumer price index- used by ABS, measures change in the price of a basket of goods that represent what most Australian families use
GDP deflator
price level
change in the price of good and service
doesn’t include G/S produced overseas
PPI
producer price index
track prices of goods and services at all stages of production
how to calculate CPI
exp current year/ exp previous year * 100
4 Biases affecting CPI
substitution- CPI assume people buy same goods every week
quality - when the quality of goo increase so will price
outlet - only a small percent of CPI is contributed by the internet as per ABS however it is much larger
new product - The products only updated every 6 year however technology changes a lot in those years
How government policies affect UE
- minimum wage
- labour market deregulation; shift from centralized to decentralized
- social security payments
Other factors impacting UE
- Trade unions; negotiate better wages for workers sometime ca increase expense for employer and decrease employment
- efficiency wages; organisations paying more to incentivise workers to be more productive
may mean increased labour force as people start seeking better pay return to work force
Hyperinflation
- the extremely rapid increase in general price levels
money loses value people don’t want to hold onto money
often associated with political unrest or economic turmoil
deflation
- decline in general price level in economy
problems with deflation
- increase debt burden
- decrease value of asset and wealth
- consumer gain due to low prices negated by low wages
- real interest rate rise; discourage borrowers and savers
