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Macroecon #2

TermDefinition
Employed anyone who has a job (part time or full time), whis is self-employed, or is an unpaid family worker is counted as employed in the household survey.
Household survey Survey of 60,000 households
Labor force Unemployed+employed
Not in the labor force Anyone who does not fit in the first or the second category. Housewives, full time students, and marginally attached workers - discouraged workers.
Under employed Workers who work part time because they could not find a full time job which they wanted. Also, people who are working in jobs that are not well suited for them (overqualified). These people are still counted as employed in the unemployment rate.
How is the unemployment rate underestimated? It underestimates the unemployment rate by not counting discouraged workers or the underemployed
How is the unemployment rate overestimated? It counts a worker who has a job but has not yet accepted it as unemployed (they are exploring their options)
How is the unemployment rate calculated? unemployment rate = number of unemployed/labor force * 100
How is the labor force participation rate calculated? Labor force/working age population *100
What is considered the working-age population? 16 years or older adults
How are growth and unemployment rate related? They are negatively related. As RGDP increases, unemployment rate decreases and visa versa.
Natural rate of unemployment Long-run unemployment rate and is never 0. This is due to frictional and structural unemployment
Frictional Unemployment Employment that arises from the process of matching workers with jobs. I.E. people move to another state and are out of work/people are underqualified with technology
Structural Unemployment More people looking for jobs than are in the labor market due to the fact that wages are set above equlibrium in the market. This usually lasts longer than frictional unemployment
Cyclical Unemployment As production falls, firms start laying off workers. Workers lose their jobs because of a recession are experience cyclical unemployment.
What is the equation for the natural rate of unemployment? structural + frictional unemployment = natural rate of unemployment
What is the equation for the actual unempyment rate? natural rate of unemployment + cyclical unemployment rate = actual unemployment rate
Minimum wage laws Some people lose their jobs as the governments sets a wage higher than equilibrium.
Labor Unions When workers organize a union and bargain with the firms to keepwages higher than equilibrium
Efficiency Wage when the firm voluntarily pays higher than equilibrium wage to the workers to increase their productivity.
Changes in natural rate of unemployment Changes in labor force characteristics (age, experience).Changes in labor market instritutions (strength of unions, unemployment benefit laws, minimum wage laws)
Why is inflation something to worry about? Inflation can impose a cost on the economy but not in the way most people think.
Why don't the level of prices matter but the rate of change of prices do? If prices cut in half, so would your paycheck. CPI does not matter but inflation does.
What are costs associated with inflation? Menu costs, unit of account costs, shoe leather costs.
Unexpected inflation Redistribution of wealth from lender to borrower.
What is inflation and how to calculate it? Inflation is the percentage chage in the price level, or CPI. [CPI (t)-CPI(t-1)/CPI(t-1) ]*100
How to calculate CPI Pick a base year. What is the base year basket (cost of typical items for a family). What is the cost of the basket for the year you are calculating? Cost of basket 2012/cost of basket 2005 * 100.
How to calculate GDP deflator NGDP/RGDP
PPI Producer price index. Cost of goods bought by producers.
Shortcoming of CPI to measure cost of living Substitution bias. If the P of apples increases and customers switch to oranges, CPI fixes the basket to not take substitution into account.
Created by: 719996363
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