Macro Chapter 4

  1. Define Unemployment.
    Those actively seeking work but who do not have employment.
  2. What are the 3 categories not included in the working-age population?
    • Under 15 years of age
    • In the 3 territories or on aboriginal reservations
    • Full-time in mental or penal institutions, hospitals or the armed forces
  3. Define Labour Force.
    Members of the working-age population, who are either employed or unemployed.
  4. What is Frictional Unemployment?
    Unemployment caused by the time it takes for people to find their jobs or to move between jobs.
  5. What is Structural Unemployment?
    Unemployment that results from a mismatch in the skills or location between jobs available and the people looking for work.
  6. What is Cyclical Unemployment?
    • Occurs as the result of the recessionary phase of the business cycle
    • When economy is in recession
  7. When does Full Employment exist?
    • Only when there is no Cyclical Unemployment.
    • This is also called the Natural Rate of Unemployment
  8. If a person is retired, would they be included in the working-age populcation? The labour force?
    • Yes, they would be included in the working-age population.
    • No, they would not be included in the labour force.
  9. Name types of people not included in the labour force.
    • Students
    • Retirees
    • Homemakers
    • People who "choose" not to work
  10. What would make the unemployment rate be understated? Overstated?
    • Understated - part time workers & discouraged workers
    • Overstated - underground economy, false information from EI recipients
  11. What is the GDP Gap?
    • The difference between potential GDP and actual GDP (real or nominal)
    • GDP Gap = Potential GDP - Actual GDP
    • An increase in cyclical unemployment would increase the GDP Gap
  12. What is Okun's Law?
    • For every 1 percent of cyclical unemployment, an economy's GDP is 2.5% below its potential.
    • GDP Gap = 2.5 X cyclical unemployment % X GDP
  13. Define Inflation.
    • A persistent rise in the general level of prices
    • Measured using a price index
    • Most widely used - CPI & GDP Deflator
  14. Define the inflation rate and how to calculate it.
    • Inflation rate - % increase in the price level from 1 year to the next
    • Inflation Rate = (Price index this year - Price index last year) / Price index last year X 100%
  15. What is CPI? How is it calculated?
    • CPI is the Consumer Price Index
    • A measurement of the average level of prices of goods and services that a typical Canadian family consumes
    • CPI = cost of basket in a given year / cost of basket in base year X 100 (not a %)
    • CPI does not include capital or government goods and services
    • CPI includes imported goods
    • CPI bundle of goods, remains constant
  16. What is the GDP Deflator? How is it calculated?
    • A measure of the price level of goods and services included in the GDP
    • GDP Deflator = nominal GDP / real GDP X 100
    • GDP Deflator includes capital and government goods and services
    • GDP Deflator does not include imported goods
    • GDP Deflator bundle of goods changes every year
  17. What is Nominal Income?
    The present dollar value of a person's income.
  18. What is Real Income?
    The purchasing power of income; that is, nominal income divided by the price level.
  19. What is the Rule of 70?
    • Estimates the time it will take for a figure to double in value given a certain percentage growth rate
    • # of years to double = 70 / % growth rate
  20. What are Redistributed Costs?
    Costs which are shifted from one group in society to another group.
  21. What are Output Costs?
    • Loss of output resulting from inflation
    • Included menu costs, lower investment, and lower net exports
  22. What is the Real Interest Rate?
    • The rate of interest measured in constant dollars
    • Real Interest Rate = nominal interest rate - the inflation rate
  23. What is Demand Pull Inflation?
    When total demand for goods and services exceeds the economy's capacity to produce.
  24. What is Cost Push Inflation?
    • Caused by an increase in the costs of production or in profit levels, with the effect being on the supply side
    • Includes wage-push, profit-push, and import-push inflation
Card Set
Macro Chapter 4
Macro Chapter 4