Macro Chap 21

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  1. Why Unemployment is a Problem
    • Lost incomes and production - ui benefits don't replace losses
    • Lost human capital - prolonged unemployment damages future prospects, loss of experience and knowledge
  2. Working Age Population
    Total pop over 15 not in institutions
  3. Labour Force
    • Sum of employed and unemployed
    • Those who want to work
  4. Unemployment Rate
    Number of people unemployed divide by labour force * 100
  5. Involuntary Part Time Rate
    Number of involuntary part time work divide by labour force
  6. Labour Force Participation Rate
    Labour force divide by working age population
  7. Marginally Attached Worker
    Not working, but wants a job and is available and has looked in recent past
  8. Discouraged Worker
    Marginally attached worker who has stopped looking b/c of repeated failure
  9. Frictional Unemployment
    • Arises from normal labour turnover
    • people entering/leaving workforce from creation/destruction of jobs
  10. Structural Unemployment
    • Arises from changes in tech/international competition
    • lasts longer than frictional
  11. Cyclical Unemployment
    Higher than normal UE at business cycle trough and lower than normal UE at business cycle peak
  12. Natural Employment Rate
    UE from frictions and structural change when there is no cyclical UE
  13. Full Employment
    UE rate equals the natural employment rate
  14. What Influences Natural UE?
    • Age Distribution of Population - many young people has lots of job seekers, high frictional
    • Scale of Structural Change - skill to perform job can lose value w/ tech upheaval
    • Real Wage Rate - min and efficiency wage bring UE.
    • UE Benefits - increase natural UE rate b/c lowers opp cost of job search
  15. Efficiency Wage
    Set above mkt to attract workers to attract best workers
  16. Output Gap
    • gap b/w real and potential GDP
    • as this fluctuates, UE fluctuates as well
    • when + lower UE
    • when - high UE
  17. Price Level
    average level of prices
  18. Inflation
    Persistently rising price level
  19. Deflation
    Persistently falling price level
  20. Why inflation and deflation are problems
    • Redistributes income - workers hired on salary, but w/o compensation for inflation
    • Redistributes wealth - borrower/lender affected 
    • Lowers real GDP and Employment - inflation raises profits, boom in production and employment. Real GDP rises above potential. This is temporary.
    • Diverts resources from production to research on inflation
  21. Hyperflation
    Inflation at its worst. Rate of 50% per month
  22. CPI Consumer Price Index
    Measure of average prices paid by urban consumers for a fixed basket of consumer g/s
  23. CPI basket
    • contains g/s each weighted by relative importance (ex bus ride vs house)
    • average household
  24. Monthly CPI survey
    statscan checks prices on goods in basket monthly and aims to measure changes in price, not qty bought or qty increase in package
  25. Calculating CPI
    • Find cost of cpi at base period prices
    • Find cost of cpi at current period prices
    • Calculate cpi for current and base period
  26. CPI =
    cost of cpi basket current divide cost of cpi basket at base
  27. Inflation Rate
    cpi this year - cpi last year divide by cpi last year
  28. Biased CPI
    • New goods - compare computer with typewriter
    • Quality change - items get better every year, this improvement is part of price increase
    • Commodity Substitution - people buy whats cheaper, cpi ignores substitution 
    • Outlet Substitution - higher prices = more walmart use
  29. GDP Deflator
    • index prices of all items included in GDP
    • = Nominal gdp divide by real gdp *100
  30. Chained Price Index for Consumption (CPIC)
    • index of prices of all items included in consumption expenditure of gdp
    • = nominal consumption expend. divide by real consump. expend. *100
  31. Core Inflation Rate
    Inflation rate that excludes volatile elements
Card Set
Macro Chap 21
Macro test 2
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