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labour force
the sum of employed and unemployed workers in the economy
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unemployment rate
- percentage of the labour force that is unemployed
- number of unemployed / labour force x 100
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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
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labour force participation rate
- percentage of the working age population in the labour force
- labour force / working age population x 100
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four types of unemployment
- frictional
- structural
- seasonal
- cyclical
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reasons why unemplyment rate understates true unemployment
- does not include discouraged workers
- does not include underemployed
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frictional unemployment
short term unemployment that arises from the process of matching skills with jobs
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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.
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cyclical unemployment
unemployment caused by a business cycle recession
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seasonal unemployment
due to nature of work and availability
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full employment
level of unemployment when there is no cyclical unemployment
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natural rate of unemployment
the normal rate of unemployment consisting of frictional unemployment plus stuctural unemployment
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efficiency wage
a higher-than-market wage that a firm pays to increase worker productivity
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price level
a measure or the avergae prices of goods and services in the economy
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inflation rate
percentage increase in the price level from one year to the next
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consumer price index
an average of the prices of the goods and services purchased by the typical urban family of four
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producer price index
an average of the prices recieved by producers of goods and services at all stages of the production process
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nominal interest rate
the stated interest rate on a loan
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real interest rate
the nominal interest rate minus the inflation rate
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deflation
a decline in the price level
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menu costs
the costs to firms of changing prices
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demand pull inflation
"too many dollars chasing to few goods"
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cost push inflation
increase in cost of key resource/decrease in availability
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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
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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
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biases in CPI
- substitution bias
- increase in quality bias
- new product bias
- outlet bias
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substitution bias
doesn't allow for consumers switching away from products whose prices increase
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increase in quality bias
how useful, quality to most people
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new product bias
consumers may switch to new products out of market basket, without time to adjust
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outlet bias
retail price original number; consumers often do not pay retail
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