Ch. 5

Question 1

what is disinflation?

Answer 1

prices rise more slowly

Question 2

Okun’s gap

Answer 2

yp-y

Question 3

Okun’s gap in percentage

Answer 3

yp-y/yp

Question 4

To be considered unemployed…

Answer 4

not working, but…

1) actively seeking
2) waiting to start set employment
3) temporary layoff..but has to be a fixed amount of time

Question 5

3 Types of Unemployment

Answer 5

1) frictional
2) structural
3) cyclical

Question 6

frictional unemployment

Answer 6

• just quit, got fired, just entered labor market

- temporary!

Question 7

structural unemployment

Answer 7

• an overall excess supply of some types of labor

- long-term unemployment

Question 8

cyclical

Answer 8

laid off because economy is bad

Question 9

what is Un

Answer 9

natural rate of unemployment

Question 10

equation for Un

Answer 10

Un = Uf + Us

Question 11

Un is

Answer 11

minimum sustainable rate of unemployment

Question 12

what is the US’s approximate Un

Answer 12

5.1%

Question 13

when yp=y, then ______ which means_______ because _______

Answer 13

when yp=y =, then we have full employment which means Un because that’s the lowest sustainable U rate

Question 14

Un exists when _____

Answer 14

yp=y

Question 15

why don’t we want Uf or Us to be zero?

Answer 15

we want people to match up with the best jobs with their talents

• inefficient firms go under
• new products

Question 16

tell me about discouraged workers

Answer 16

• NOT counted in labor force
• NOT counted in unemployed
• when unemployment goes down, discouraged workers start looking for a job again because economy is better…this causes U to rise because more people looking for a job now

Question 17

Okun’s Law

Answer 17

yp-p/yp = 2[U-Un]

Question 18

in what form must 2[U-Un] be in

Answer 18

DECIMALS

Question 19

when does yp-y = 0 and what does that mean

Answer 19

yp-y=0 when potential output = actual output and U=Un

Question 20

if (yp-y) > 0 then…

Answer 20

GDP is low then actual U>Un because Uc>0

Question 21

what does U =

Answer 21

U = Uc + Uf +Us

Question 22

if (yp-y)

Answer 22

economy is booming and U

Question 23

CPI =

Answer 23

consumer price index

Question 24

what is the CPI

Answer 24

average price of about 400 consumer goods and services (using the same 400 goods from survey month)

Question 25

what kind of products are included in the 400 goods?

Answer 25

mostly newly produced items but also includes - used cars - existing houses - but also new cars and new houses

Question 26

% change CPI =

Answer 26

inflation rate

Question 27

items are calculated in ____ year and the government calls it the _____ year

Answer 27

items are calculated in the survey year and the government calls it the weight year

Question 28

how is the CPI biased?

Answer 28

official % change CPI is 1.1% higher than the actual inflation rate - another way to phrase that: actual CPI is lower than the official by 1.1%

Question 29

same ____ items are used in every month as determined in the _____ year

Answer 29

the same 400 items are used every month as determined in the survey year

Question 30

how are the 400 items determined?

Answer 30

400 items that most money was spend on...also takes into account the weight - note that it's not how many but hoe much was spend on items it 60000 pieces of candy still has less weight than 1 house

Question 31

the___ compares the____ each____ with the price in some arbitrarily chosen _____ in the past, called the _____ year. This is almost never the same as the _____ year.

Answer 31

the CPI compares the prices each month with the prices in some arbitrarily chosen year int he past, called the base year. This is almost never the same as the weight/survey year

Question 32

What is the formula for CPI

Answer 32

CPI = (cost of basket of 400 goods using current prices) / (cost of basket foods using base year prices) x 100

Question 33

what is the cumulative inflation equation?

Answer 33

CPI - 100 (using regular number form)

Question 34

what is the numerator of the CPI equation?

Answer 34

(cost of 400 goods using current prices)

Question 35

what is the denominator of the CPI equation?

Answer 35

(cost of basket foods using base year prices)

Question 36

what is the inflation rate if the government says the CPI is x?

Answer 36

x- 1.1%