Chapter 13 - Unemployment and Inflation

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Flashcards on Chapter 13 - Unemployment and Inflation , created by emma.charleswort on 10/14/2014.

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Question Answer
What is unemployment rate? The percentage of the labour force that is unemployed
What is the definition of labour force? The sum of employed and unemployed workers in the economy
What are discouraged workers? People who are available for work but have not looked for a job during the previous four weeks because they believe no jobs are available for them
What is the definition of long-term employment mean? Those in the labour force who have been continuously unemployed for a year or longer
What is cyclical unemployment? Unemployment caused by a business cycle contraction
What us frictional employment? Short-term unemployment arising from the process of matching workers with jobs
What is seasonal unemployment? Unemployment due to factors such as weather, variations in tourism and other calendar related events
What is structural unemployment? Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs
What is the definition of 'natural rate of unemployment'? The unemployment rate that exists when the economy is operating at potential GDP
What does NAIRU stand for? Non-accelerating inflation rate of unemployment
What is the definition of Non-accelerating inflation rate of unemployment? The level of unemployment below which the rate of inflation will rise
What is 'Job Services Australia'? A national network of private and community recruitment agencies that find jobs for unemployed people and other job seekers
What is the definition of 'enterprise bargaining'? Wages and working conditions negotiations between employers and unions or employers and employees at the workplace level
What is price level? A measure of the average prices of good and services in the economy
What is the definition of inflation? The sustained increase in the general level of prices in the economy
What is an inflation rate? The percentage increase in the general price level in the economy from one year to the next
What does PPI stand for? Producer price index
What is a producer price index? An average of the prices received by producers of goods and services at all stages of the production process
What are menu costs? The costs to firms of changing prices
What is the definition of hyperinflation? Extremely rapid increases in the general price level
What is the definition of 'deflation'? A decline in the general price level in the economy
What is 'demand-pull inflation'? Inflation that is caused by an increase in the aggregate demand for goods and services and production levels are unable to meet this demand immediately
What is aggregate demand? The quantity of goods and services demanded by households, firms and government, plus net exports
What is cost push inflation? Inflation that arises as a result of a negative supply shock - that is, anything that causes a decrease in the aggregate supply of goods and services
What is aggregate supply? The quantity of goods and services supplied by firms
How is the unemployment rate calculated? unemployed / labour force x 100
How is the labour force participation calculated? labour force / working age population x 100
What does natural rate of unemployment equal? Frictional + structural
What are the major measures of the price level? 1. GDP inflator 2. Consumer price index 3. Producer price index
What potential biases existing calculating the consumer price index? - Substitution bias - Increase in quality bias - New product bias Outlet bias
Why is unanticipated inflation a problem? Actual real interest rate and actual real wage rate received differ from the expected real interest rate and real wage rate
The natural rate of unemployment is not equal to zero because It is the sum of structural unemployment and frictional unemployment
A firm may lay off a substantial number of workers because of......? a business cycle contraction during which the firm cuts back its production in response to a fall in demand for its products
A person who is between jobs in the short run but is actively engaged in job search is considered to be ......? Frictionally unemployed
Experts in hand drawn animation who remain unemployed due to the film industry's switch to computer-generated animation are considered to be......? Structurally unemployed
When a company reduces production and employment during economic recessions, those employees who lose their jobs are generally considered to be........? Cyclically unemployed
Government unemployment benefits tend to.......? Increase the unemployment rate by lowering the opportunity cost of job search
The government of the Republic of Otivia set the minimum wage at 25c per hour in 1938 in its aim to guarantee workers a higher rate of income per hour. This wage was..........? Probably higher than the equilibrium wage of very low-skilled workers since minimum wages are binding price floors
What is considered one of the potential biases in calculating the consumer price index? 1. Increase in quality bias 2. Substitution bias 3. New product bias
The difference between nominal variable and a real variable is that............ nominal variables are calculated in current-year prices and real variables are measured in dollars of the case year for the price index to correct for the effects of inflation
What is an inflation rate? The percentage increase in the general price level in the economy from one year to the next
Suppose that the inflation rate turns out to be much higher than most people expected. In that case what happens? A borrower will gain from the situation, while the lender will lose
The type of inflation that is a greater problem to society is.....? Unanticipated inflation, since it causes greater redistribution of income between those making payments and those awaiting payments in the future
During a recession, a person would prefer to work in an industry that produces what? During a recession, a person would prefer to work in an industry that produces an inferior good because the demand for inferior goods should increase with decreases in income during a recession
During an economic expansion, a person would prefer to work in an industry that produces what? A normal good because the demand for normal goods should increase in income during an economic expansion
If a country engages in free trade, is the total number of jobs in the country likely to decline? No, because the free trade allows a country to operate more efficiently, which creates more opportunities and more jobs
What are the problems with measuring the unemployment rate? - The number of discouraged workers increases during a recession, therefore the official unemployment rate appears lower than it would otherwise be - Under-employed workers - people are work part time but would like more hours
What is the formula for labour force participation rate? Labour force / working age population x 100 = labour force participation rate
What are the types of unemployment? - Cyclical Unemployment - is due to economic fluctuations - Frictional unemployment - arises from normal labour turnover - Structural unemployment - arises from changes in technology and structure of economy
What is the employment rate associated with full employment is called? Natural rate of unemployment or non-accelerating inflation rate of unemployment (NAIRU)
When does full employment occur? Full employment occurs when all unemployment is frictional and structural
What kind of factors affect structural unemployment? - More university education > structural unemployment - More job retaining > structural unemployment
What factors affect frictional unemployment? - Provision of job search services > job search time > frictional unemployment - More unemployment benefits > job search time > frictional unemployment
What ages refers to youth unemployment? Youth unemployment refers to those people who are aged 15-19 years, unemployed and actively looking for full-time work
What are the consequences of unemployment for a monetary cost? - Loss of potential output - Loss of skills ? reduce employability - Burden to the working population
What are the consequences of unemployment for a non-monetary cost? - Personal, family and social problems associated with unemployment - Long term unemployment - Welfare dependance
What does the labour force participation rate measure? The labour force participation rate measures the percentage of the working age population - that is, those aged 15 years and over - that is in the labour force
The unemployment rate follows the business cycle how? Rising during economic contractions and recessions and falling during economic expansions and booms
What are the four biases that cause changes in the CPI to overstate the true inflation rate? 1. Substitution rate 2. Increase in quality bias 3. New product bias 4. Outlet bias
What does the CPI measure? The CPI is a measure of the price level, not the inflation rate
How is economic growth measured? Economic growth is measured by the percentage change in real GDP from one year to the next
Formula to obtain a real variable? Divide the nominal variable by a price index and multiply by 100 to obtain a real variable
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