economics 20

  1. labour force
    the sum of employed and unemployed workers in the economy
  2. unemployment rate
    • percentage of the labour force that is unemployed
    • number of unemployed / labour force x 100
  3. discouraged workers
    people who are available for work but have not looked for a job during the previous four weeks because they believe no jobs are available for them
  4. labour force participation rate
    • percentage of the working age population in the labour force
    • labour force / working age population x 100
  5. four types of unemployment
    • frictional
    • structural
    • seasonal
    • cyclical
  6. reasons why unemplyment rate understates true unemployment
    • does not include discouraged workers
    • does not include underemployed
  7. frictional unemployment
    short term unemployment that arises from the process of matching skills with jobs
  8. structural unemployment
    unemployment arising from a persistant mismatch between the skills and attributes of workers and the requirements of their jobs. due to decline in demand for certain skills.
  9. cyclical unemployment
    unemployment caused by a business cycle recession
  10. seasonal unemployment
    due to nature of work and availability
  11. full employment
    level of unemployment when there is no cyclical unemployment
  12. natural rate of unemployment
    the normal rate of unemployment consisting of frictional unemployment plus stuctural unemployment
  13. efficiency wage
    a higher-than-market wage that a firm pays to increase worker productivity
  14. price level
    a measure or the avergae prices of goods and services in the economy
  15. inflation rate
    percentage increase in the price level from one year to the next
  16. consumer price index
    an average of the prices of the goods and services purchased by the typical urban family of four
  17. producer price index
    an average of the prices recieved by producers of goods and services at all stages of the production process
  18. nominal interest rate
    the stated interest rate on a loan
  19. real interest rate
    the nominal interest rate minus the inflation rate
  20. deflation
    a decline in the price level
  21. menu costs
    the costs to firms of changing prices
  22. demand pull inflation
    "too many dollars chasing to few goods"
  23. cost push inflation
    increase in cost of key resource/decrease in availability
  24. why inflation is a problem:
    • price effects - not all prices change at the same rate during inflation
    • income effects - not all incomes change at same rate during inflation
    • wealth effects - not all forms of wealth change in value at same rate
  25. price, income, and wealth effect lead to more problems of inflation:
    • social tension - upset over inflation with loss of savings; anger at gvmt
    • speculation - moving money around; waste of time for same waste of money
    • uncertainty discourages enterprise
    • shortened time horizons - money loses value, rush to spend; exaserbates, poor decisions
    • bracket creep - concerning tax brackets
  26. biases in CPI
    • substitution bias
    • increase in quality bias
    • new product bias
    • outlet bias
  27. substitution bias
    doesn't allow for consumers switching away from products whose prices increase
  28. increase in quality bias
    how useful, quality to most people
  29. new product bias
    consumers may switch to new products out of market basket, without time to adjust
  30. outlet bias
    retail price original number; consumers often do not pay retail
Card Set
economics 20
chpater 20