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unemployment - Lost of Incomes and Production ; Lost Human Capital
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- loss of income and lost production
- Benefit create a safety net, don't full replace lost earnings
- Lost production means lower consumption, investment in capital, lowers the living standard in the present and future
- Permanently damages a person's job prospects by destroying human capital
-Hurts human capital
- Benefit create a safety net, don't full replace lost earnings
- Lost production means lower consumption, investment in capital, lowers the living standard in the present and future
- Permanently damages a person's job prospects by destroying human capital
-Hurts human capital
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Working-age-population
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- others who are too young to work or who live in institution and are unable to work
- total number of people aged 15 years and over
Divided into 2 groups; those in the labor force and those not in the labor force
- total number of people aged 15 years and over
Divided into 2 groups; those in the labor force and those not in the labor force
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Labor force
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- the sum of the employed and the unemployed
- must have a full-time or a part-time job
- must have a full-time or a part-time job
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unemployed
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A person must be available for work and must be...
1. on temporary layoff with an expectation of recall
2. Without work but has looked for work in the past four weeks
3. Has a new job to start within four weeks
1. on temporary layoff with an expectation of recall
2. Without work but has looked for work in the past four weeks
3. Has a new job to start within four weeks
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Unemployment rate
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The percentage of the people in the labor force who are unemployed
# of people unemployed / Labor force X 100
# of people unemployed / Labor force X 100
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Involuntary Part-Time Rate
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The percentage of the people in the labor force who work part time but want full-time jobs
Counting involuntary part-time workers as unemployed would raise the measured unemployment rate
# of involuntary part-time workers / Labor force X 100
Counting involuntary part-time workers as unemployed would raise the measured unemployment rate
# of involuntary part-time workers / Labor force X 100
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Labor force participation rate
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the percentage of the working-age population who are members of the labor force
Labor force / working-age population X 100
Labor force / working-age population X 100
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Employment-to-population ratio
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The percentage of people of working age who have jobs
# of people employed / working-age population X 100
# of people employed / working-age population X 100
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Discouraged searcher
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A person who currently is neither working nor looking for work buy has indicated that he or she wants a job, is available for work, and has looked for work sometime in the recent past but has stopped looking because of repeated failure
- the official unemployment measure excludes discouraged searches because they haven't made specific efforts to find a job within the past four weeks.
Counting discouraged searchers as unemployed would raise the measured unemployment rate
- the official unemployment measure excludes discouraged searches because they haven't made specific efforts to find a job within the past four weeks.
Counting discouraged searchers as unemployed would raise the measured unemployment rate
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Involuntary Part-Timers
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Workers who would like full-time jobs and can't find them are part-time unemployed but not counted as such in the official statistics
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Frictional unemployment
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From people entering and leaving the labor force and form the ongoing creation and destruction of jobs; permanent and healthy phenomenon in a dynamic growing economy
- is unemployment associated with normal labor turnover
- is unemployment associated with normal labor turnover
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Structural unemployment
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Arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs
-last longer than frictional unemployment, workers must retain and possibly relocate to find a job
- may have to move to retrain, and get new jobs
- Best available option might be to retire early or take a lower-skilled, lower-paying job
-last longer than frictional unemployment, workers must retain and possibly relocate to find a job
- may have to move to retrain, and get new jobs
- Best available option might be to retire early or take a lower-skilled, lower-paying job
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Cyclical unemployment
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The higher than normal unemployment at a business cycle trough and the lower than normal unemployment at a business cycle.
A worker who is laid off because the economy is in a recession and who gets rehired some months later when the expansion begin.
A worker who is laid off because the economy is in a recession and who gets rehired some months later when the expansion begin.
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Natural unemployment rate
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the unemployment rate when the economy is at full employment - natural unemployment as a percentage of the labor force
- Age distribution of the population
- Scale of structural change
- Real wage rate
- Unemployment benefits
- Age distribution of the population
- Scale of structural change
- Real wage rate
- Unemployment benefits
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full employment
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A situation in which the unemployment rate equals the natural unemployment rate
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Output gap
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The gap between real GDP and potential GDP
Unemployment rate and real GDP = potential GDP, so the output gap is 0
When the unemployment rate is less than the natural unemployment rate, real GDP is greater than potential GDP and the output gap is positive
When unemployment rate is greater than the natural unemployment, real GDP is less than potential GDP and the output gap is negative
Unemployment rate and real GDP = potential GDP, so the output gap is 0
When the unemployment rate is less than the natural unemployment rate, real GDP is greater than potential GDP and the output gap is positive
When unemployment rate is greater than the natural unemployment, real GDP is less than potential GDP and the output gap is negative
question
Price level
answer
The average level of prices, and the value of money.
1. want to measure the annual percentage change of the price level, the inflation rate or deflation rate
2. We want to distinguish between the money values and real values of economic variables such as your student loans and your parents savings
1. want to measure the annual percentage change of the price level, the inflation rate or deflation rate
2. We want to distinguish between the money values and real values of economic variables such as your student loans and your parents savings
question
inlfation
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A persistently rising price level
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deflation
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A persistently falling price level
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Inflation and deflation a problem?
- Redistributes income
- Redistributes income
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- An unexpected burst of inflation raises prices but doesn't immediately raise wages. Workers are worse off because their wages buy less than they bargained for and employers are better off because their profits rise
- Deflation has the opposite effect, wage rates don't fall but prices fall
- Deflation has the opposite effect, wage rates don't fall but prices fall
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Inflation and deflation a problem?
- Redistributes Wealth
- Redistributes Wealth
answer
People enter into loan contracts that are fixed in money terms and that pay an interest rate agreed as a percentage of the money borrowed and lent.
- Inflation - the money that borrower repay to the lender buys less than the money originally loaned - the borrower wins and the lenders loses, the interest paid on the loan doesn't compensate the lender for the loss in the value of the money loaned
- Deflation - the money that the borrower repays to the lender buys more than the money originally loaned - the borrower loses and the lender wins
- Inflation - the money that borrower repay to the lender buys less than the money originally loaned - the borrower wins and the lenders loses, the interest paid on the loan doesn't compensate the lender for the loss in the value of the money loaned
- Deflation - the money that the borrower repays to the lender buys more than the money originally loaned - the borrower loses and the lender wins
question
Inflation and deflation a problem?
Lower Real GDP and Employment
Lower Real GDP and Employment
answer
Inflation - raises firms' profits brings a rise in investment and a boom in production and employment.
Real GDP rises above potential GDP and the unemployment rate falls below the natural rate - temporary, profitable investment dries up, spending falls, real GDP falls below potential GDP, and the unemployment rate rises
Deflation - Greater consequences for real GDP and jobs. Businesses and households that are in debt (borrowers) are worse off and they cut their spending. A fall in total spending brings a recession and rising unemployment
Real GDP rises above potential GDP and the unemployment rate falls below the natural rate - temporary, profitable investment dries up, spending falls, real GDP falls below potential GDP, and the unemployment rate rises
Deflation - Greater consequences for real GDP and jobs. Businesses and households that are in debt (borrowers) are worse off and they cut their spending. A fall in total spending brings a recession and rising unemployment
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Inflation and deflation a problem?
Diverts Resources from Production
Diverts Resources from Production
answer
Turns the economy into a casino and diverts resources from productive activities to forecasting inflation. Can be profitable to forecast the inflation rate or deflation correctly than to invent a new product
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hyperinflation
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Inflation rate of 50% a month or higher that grinds the economy to halt and cause a society to collapse
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Consumer Price Index, CPI
answer
A measure of the average of the prices paid buy urban consumers for a fixed basket of consumer goods and services
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The CPI Basket
answer
Contains the goods and services represented in the index, each weighted by its relative importance.
The idea is to make the relative importance of the items in the CPI basket the same as that in the budget of an average urban household
The idea is to make the relative importance of the items in the CPI basket the same as that in the budget of an average urban household
question
The monthly price survey
answer
Canada employees check the prices of the goods and service in the CPI aims to measure price changes. The prices recorded each month refer to exactly the same item.
Must record the details of changes in quality or packaging so that price changes can be isolated from other changes
The price of jelly beans increase, but there are more jelly beans per box
Must record the details of changes in quality or packaging so that price changes can be isolated from other changes
The price of jelly beans increase, but there are more jelly beans per box
question
Calculating the CPI
answer
1. Find the cost of the CPI basket at base-period prices
2. Find the cost of the CPI basket at current-period prices
3. Calculate the CPI for the base period and the current period
Implicitly assumes that consumers buy the same relative quantities of goods as in a base year
2. Find the cost of the CPI basket at current-period prices
3. Calculate the CPI for the base period and the current period
Implicitly assumes that consumers buy the same relative quantities of goods as in a base year
question
Formula for the CPI
answer
Cost of CPI basket as current period prices / Cost of CPI basket at base-period prices
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CPI purpose
answer
measure changes in the cost of living and the value of money
inflation rate as the annual percentage change in the CPI
inflation rate as the annual percentage change in the CPI
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Inflation rate
answer
CPI this year - CPI last year / CPI last year X 100
question
GDP deflator
answer
An index of the prices f all the items included in GDP and is the ratio of nominal GDP to real GDP
Nominal GDP / Real GDP X 100
-Real GDP includes consumption expenditure,investment,government expenditure, and net exports, the GDP deflator is an index of the pries of all these items
Nominal GDP / Real GDP X 100
-Real GDP includes consumption expenditure,investment,government expenditure, and net exports, the GDP deflator is an index of the pries of all these items
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Chained Price Index of Consumption
answer
An index of the prices of all the items included in consumption expenditure in GDP and is the ratio of nominal consumption expenditure of real consumption expenditure
Nominal consumption expenditure / Real consumption expenditure X 100
uses current-period and previous-period quantities rather than fixed quantities from an earlier period, incorporates substitution effects and new goods and overcomes the sources of bias in the CPI
Nominal consumption expenditure / Real consumption expenditure X 100
uses current-period and previous-period quantities rather than fixed quantities from an earlier period, incorporates substitution effects and new goods and overcomes the sources of bias in the CPI
question
Core Inflation rate
answer
A measure of the inflation rate that excludes volatile prices in an attempt to reveal the underlying inflation trend
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