Chapter 5 Monitoring Jobs and Inflation

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  1. Working age population
    number of people over 16 not in an institution (jail, hospital, military)
  2. Population split
    working age population and the young and institutionalized
  3. Working age population split
    In the labor force and not in the labor force
  4. Labor force
    Employed or unemployed
  5. Unemployed
    • Available for work and one of the following
    • -Without work but have looked in the past 4 weeks
    • -Waiting to be called back to a job after layoff
    • -Waiting to start a new job in 30 days
  6. Unemployment rate
    U = Number unemployed / labor force *100

    ***Labor force = employed + unemployed
  7. Employment to Population Ratio
    EmpPop Ratio = number employed / working age pop *100
  8. The labor force participation rate
    LFP = labor force / working age pop *100
  9. Marginally attached workers
    Neither working nor looking for work but are available for work and has looked in recent past
  10. Discouraged workers
    Have stopped looking for work because of repeated failure
  11. Part-time workers for economic reasons
    Can't find full-time work even though they want it
  12. Frictional unemployment
    Is the unemployment associated with people entering and leaving the labor force and natural job creation and destruction
  13. Structural unemployment
    the unemployment that arise because of changes in skills, technology, internaKonal compeKKon, or job locaKon
  14. Cyclical unemployment
    The temporary unemployment associated with the business cycle
  15. Natural unemployment
    The combination of structural and frictional unemployment, or when cyclical unemployment = 0
  16. Full Employment
    Occurs when the actual unemployment is equal to the natural rate of unemployment.

    • Factors that influence the level of full employment
    • -Age distribution of the population
    • -Scale of structural change
    • -Real wage rate
    • -Unemployment benefits
  17. Out gap
    Actual GDP - Potential GDP
  18. Price level
    The average level of prices
  19. Inflation
    A persistent (ongoing) increase in the price level
  20. Deflation
    A persistent decrease in the price level, or negative inflation.
  21. Disflation
    A decrease in the inflation rate.
  22. Inflation problems
    -Redistributes Income - unexpected inflation lowers real wages

    -Redistributes wealth - unexpected inflation means debtors pay back creditors with money that is worth less than originally borrowed.

    -Lowers real GDP and employment – with deflation, firms and households with debt are worse off and cut spending.

    -Diverts resources from production – people and firms spend time forecasting inflation, shoe leather costs, menu costs.
  23. Consumer Price Index
    CPI = measure of the average prices paid by consumers for a fixed basket of goods.

    The CPI is set to 100 during a period called the reference base period, or base year.

    Measures inflation
  24. Constructing the CPI

    • Selecting the CPI basket
    • Conducting a monthly survey of prices
    • Calculating the CPI
  25. CPI Formula
    CPI = (Cost of basket at current-period prices / Cost of basket at base-period prices)*100
  26. Inflation Rate
    The percentage change in the price level from one year to the next.

    Inflation rate = [(CPI this year – CPI last year) ÷ CPI last year]*100
  27. Sources of Bias
    • New goods bias
    • Quality change bias
    • Commodity substitution bias
    • Outlet substitution bias
  28. Core Inflation
    Core inflation excludes volatile food and energy components to measure underlying trend of inflation.

    If inflation passes through to core, it is persistent. If not, it is likely temporary.
  29. Real variables
    Real Value at CPI Base Year = Nominal Value / CPI * 100

    Real Wage = Nominal Wage/CPI * 100
Card Set
Chapter 5 Monitoring Jobs and Inflation
University of Oregon ECON 202
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