MACRO - Chapter 3

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MACRO - Chapter 3
2013-12-07 16:32:35
Unemployment Inflation

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  1. What counts as unemployed?
    If you aren't doing paid work but actively looking for a job
  2. Everyone in the working age population is caterglorized into 3 groups what are they?
    1. Unemployed 2. Employed 3. Not in the labour force (full-time student, retired or homemaker)
  3. Labour force
    Employed + Unemployed
  4. How do you calculate unemployment rate?
    unemployed/labour force x 100 =
  5. How to do calculate labour force participation rate?
    labour force/working age population x 100 which means percentage of working age population in the labour force
  6. Involuntary Part-time Workers
    Workers who are employed part-time but would rather have a full-time job
  7. Discouraged workers
    Those who want to work but give up actively searching for a job to either going back to school or have just given up.
  8. Frictional Unemployment
    Due to normal labour turnover and job search healthy part of changing economy. This is considered healthy unemployment.
  9. Structural Unemployment
    Due to technological change or international competition that makes worker's skills obsolete in Canada. This is considered healthy unemployment
  10. Seasonal Unemployment
    Due to season changes in weather, in summer fruit picking in winter snow shovelling. This is not consider healthy or unhealthy unemployment
  11. Cyclical Unemployment
    Due to fluctuations in economic activity over the business cycle (people being laid off due to not enough business income). This is an unhealthy type of unemployment
  12. What is the Natural Rate of Unemployment?
    Seasonal, Frictional and structural. Full employment includes these types of unemployment.
  13. Full Employment
    Is not zero percent unemployment but zero percent cyclical unemployment.
  14. When is Real GDP equal to Potential GDP?
    When the economy is in full employment meaning there is no cyclical unemployment.
  15. Recessionary Gap
    There is no full employment, the unemployment rate rises above the natural rate due to cyclical unemployment
  16. Inflationary Gap
    Unemployment is below the natural rate due to less then normal frictional, structural. and seasonal unemployment.
  17. What type of gap does Real GDP = Potential GDP make?
    None (Natural Rate of unemployment)
  18. What type of gap does Real below Potential GDP make?
    Recessionary Gap (Unemployment rate above natural rate)
  19. What type of gap does Real above Potential GDP make?
    Inflationary Gap (Unemployment rate below nature rate)
  20. What is Inflation?
    Inflation is both a persistent rise in average prices and fall in the value of money. WHen inflation occurs you must spend more just to get the same products/services as before. Making your money worth less.
  21. What is CPI and how do you calculate it?
    (Consumer Price Index) Measure of average prices of fixed shopping basket of products and services. CPI is calculated New cost/Base price x 100
  22. Inflation Rate
    Annual percentage change in the CPI
  23. Core inflation rate
    Does not include fruit, vegetables, gasoline, natural gas, fuel oil, mortgage interest, intercity transportation, and tobacco products.
  24. Nominal Interest Rates
    Observed interest rates equal to number of dollars received per year in interest as percentage of numbers of dollars saved
  25. Real Interest Rate
    Nominal interest rate adjusted before effects of inflation
  26. Deflation
    Persistent fall in average prices and rise in the value of money. Although this sounds appealing it basically is the reverse image of the inflationary spiral sending people out of jobs as well. Also makes assets fall in value hurting borrowers but helping lenders.
  27. What is important for measuring the stand of living?
  28. What is important for measuring cost of living?
  29. Nominal GDP = ?
  30. Velocity of money
    Number of times a unit of money changes hands during a year.
  31. Quantity theory of money
    Increase in the quantity of money causes an equal percentage increase in inflation rate.
  32. Phillips Curve
    Graph showing inverse relations between unemployment and inflation
  33. Demand-pull inflation
    Rising average prices caused by increase in demand
  34. Supply shocks
    Events directly affecting businesses cost prices and supply, ex. natural disasters, energy price increase and droughts are all examples)
  35. Cost-push inflation
    Rising average prices caused by decreases in supply
  36. Stagflation
    Simultaneous recession (Higher unemployment) and inflation (higher average prices) Word comes from a mix of stagnation - the economy is standing still or failing into recession with higher unemployment, inflation - the rising prices
  37. Demand Pull Infaltion send unemployment up or down and inflation up or down?
    It send unemployment down but inflation up.
  38. Cost push Inflation sends unemployment up or down and inflation up or down?
    It sends unemployment up and inflation up.