Unemployment and Inflation

Question 1

requirements to be considered unemployed

Answer 1

• not worked in the week prior
• actively seeking work
• willing to start immediately

Question 2

describe the meaning of employed

Answer 2

worked at least 1 hour in the week before and got paid for it

Question 3

how to calculate the unemployment rate?

Answer 3

• no. ue/ LF*100

Question 4

calculate Labour Force Participation

Answer 4

• LF/ working age pop*100

Question 5

labour force

Answer 5

unemployed plus employed

Question 6

Problems with measuring the Unemployment rate

Answer 6

• 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

Question 7

costs of unemployment to the economy

Answer 7

• gdp decrease
• loss human capita; skills may deteriorate
• retraining cost

Question 8

costs of unemployment to the government

Answer 8

• loss of tax

- social welfare payments

Question 9

costs of unemployment to the individual

Answer 9

• loss of income

- self esteem

Question 10

types of unemployment

Answer 10

• cyclical
• structural
• frictional

Question 11

cyclical

Answer 11

causes by business cycle; contraction and recession

Question 12

structural

Answer 12

skills of the people may not match the skills needed in the economy

Question 13

frictional

Answer 13

seasonal
people in between jobs
or graduated people looking for work

Question 14

measuring inflation

Answer 14

CPI
GDP deflator
PPI

Question 15

CPI

Answer 15

Consumer price index- used by ABS, measures change in the price of a basket of goods that represent what most Australian families use

Question 16

GDP deflator

Answer 16

price level
change in the price of good and service
doesn’t include G/S produced overseas

Question 17

PPI

Answer 17

producer price index

track prices of goods and services at all stages of production

Question 18

how to calculate CPI

Answer 18

exp current year/ exp previous year * 100

Question 19

4 Biases affecting CPI

Answer 19

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

Question 20

How government policies affect UE

Answer 20

• minimum wage
• labour market deregulation; shift from centralized to decentralized
• social security payments

Question 21

Other factors impacting UE

Answer 21

• 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

Question 22

Hyperinflation

Answer 22

• 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

Question 23

deflation

Answer 23

• decline in general price level in economy

Question 24

problems with deflation

Answer 24

• 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

Question 25

what causes inflation?

Answer 25

demand pull inflation; unable to meet demand; particularly when economy close to full employment

cost push inflation; not enough supply, caused by negative AS

Question 26

sources of supply shock

Answer 26

• increase import price
• increase wage
• increase indirect taxation
• increase monopoly power
• natural disasters