MACRO - Chapter 3

If you aren't doing paid work but actively looking for a job

1. Unemployed 2. Employed 3. Not in the labour force (full-time student, retired or homemaker)

Employed + Unemployed

unemployed/labour force x 100 =

labour force/working age population x 100 which means percentage of working age population in the labour force

Workers who are employed part-time but would rather have a full-time job

Those who want to work but give up actively searching for a job to either going back to school or have just given up.

Due to normal labour turnover and job search healthy part of changing economy. This is considered healthy unemployment.

Due to technological change or international competition that makes worker's skills obsolete in Canada. This is considered healthy unemployment

Due to season changes in weather, in summer fruit picking in winter snow shovelling. This is not consider healthy or unhealthy 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

Seasonal, Frictional and structural. Full employment includes these types of unemployment.

Is not zero percent unemployment but zero percent cyclical unemployment.

When the economy is in full employment meaning there is no cyclical unemployment.

There is no full employment, the unemployment rate rises above the natural rate due to cyclical unemployment

Unemployment is below the natural rate due to less then normal frictional, structural. and seasonal unemployment.

None (Natural Rate of unemployment)

Recessionary Gap (Unemployment rate above natural rate)

Inflationary Gap (Unemployment rate below nature rate)

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.

(Consumer Price Index) Measure of average prices of fixed shopping basket of products and services. CPI is calculated New cost/Base price x 100

Annual percentage change in the CPI

Does not include fruit, vegetables, gasoline, natural gas, fuel oil, mortgage interest, intercity transportation, and tobacco products.

Observed interest rates equal to number of dollars received per year in interest as percentage of numbers of dollars saved

Nominal interest rate adjusted before effects of inflation

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.

Quantities

Prices

P (PRICES) x Q (QUANTITIES)

Number of times a unit of money changes hands during a year.

Increase in the quantity of money causes an equal percentage increase in inflation rate.

Graph showing inverse relations between unemployment and inflation

Rising average prices caused by increase in demand

Events directly affecting businesses cost prices and supply, ex. natural disasters, energy price increase and droughts are all examples)

Rising average prices caused by decreases in supply

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

It send unemployment down but inflation up.

It sends unemployment up and inflation up.