Chapter 5 Monitoring Jobs and Inflation
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Working age population
number of people over 16 not in an institution (jail, hospital, military)
working age population and the young and institutionalized
Working age population split
In the labor force and not in the labor force
Employed or 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
U = Number unemployed / labor force *100
***Labor force = employed + unemployed
Employment to Population Ratio
EmpPop Ratio = number employed / working age pop *100
The labor force participation rate
LFP = labor force / working age pop *100
Marginally attached workers
Neither working nor looking for work but are available for work and has looked in recent past
Have stopped looking for work because of repeated failure
Part-time workers for economic reasons
Can't find full-time work even though they want it
Is the unemployment associated with people entering and leaving the labor force and natural job creation and destruction
the unemployment that arise because of changes in skills, technology, internaKonal compeKKon, or job locaKon
The temporary unemployment associated with the business cycle
The combination of structural and frictional unemployment, or when cyclical unemployment = 0
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
Actual GDP - Potential GDP
The average level of prices
A persistent (ongoing) increase in the price level
A persistent decrease in the price level, or negative inflation.
A decrease in the inflation rate.
-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.
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.
Constructing the CPI
- Selecting the CPI basket
- Conducting a monthly survey of prices
- Calculating the CPI
CPI = (Cost of basket at current-period prices / Cost of basket at base-period prices)*100
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
Sources of Bias
- New goods bias
- Quality change bias
- Commodity substitution bias
- Outlet substitution bias
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.
Real Value at CPI Base Year = Nominal Value / CPI * 100
Real Wage = Nominal Wage/CPI * 100
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