Chapter 5

Question 1

2 Problems of unemployment

Answer 1

lost income/ production
lost human capital

Question 2

Working Age Population (WP)

Answer 2

total # 15yrs+

Question 3

Labour Force (LF)

Answer 3

people employed + people unemployed

Question 4

Employed (E)

Answer 4

people who have either a full or part-time job

Question 5

Unemployed (U)

Answer 5

must be (1) available to work and one of the following:
-temporary layoff with expectation of return
-without work but has looked in the past 4 weeks
-has a new job start within 4 weeks

Question 6

Not in Labor Force (NLF)

Answer 6

people neither employed nor unemployed
(full-time students, retirees, job start >4weeks away)

Question 7

4 Labor Market Indicators

Answer 7

Unemployment Rate
Involuntary PT Rate
Labor Force Participation Rate
Employment Rate

Question 8

Unemployment Rate

Answer 8

% of LF who are unemployed

Question 9

Involuntary PT Rate

Answer 9

% of LF that work PT but want FT

Question 10

Labor Force Participation Rate

Answer 10

% of WP who are part of LF

Question 11

Employment Rate

Answer 11

% of WP that are employed

Question 12

3 groups excluded from unemployed labor

Answer 12

1- discouraged workers
2- long-term future starts
3- involuntary PT workers

Question 13

Frictional Unemployment (UF)

Answer 13

normal labor turnover from changing jobs, moving, etc. Normal and healthy!

Question 14

Structural Unemployment (US)

Answer 14

changed in technology or international competition change required skills. Beyond anyone’s control!

Question 15

Cyclical Unemployment (UC)

Answer 15

higher than normal unemployment do to a downturn in the economy (in recession). Unwanted & harmful!

Question 16

Natural Unemployment

Answer 16

unemployment from only frictional and structural, NO CYCLICAL

Question 17

Full Employment

Answer 17

when economy is neither in a recession or expansion. No cyclical unemployment (natural!)
Full Employment = Potential GDP

Question 18

4 factors that influence natural U rate

Answer 18

1- age distribution (younger pop. = higher UF)
2- scale of structural change (technology)
3- real wage rate (if above equilibrium, supply > demand = higher U
4- unemployment benefits

Question 19

Output Gap

Answer 19

gap between Actual Real GDP (YA) and Potential GDP (YP)
YA > YP = positive / inflationary gap
YA < YP = negative / recessionary gap
Full employment when YA = YP

Question 20

Redistribution of Income

Answer 20

unexpected inflation = employees worse off (high prices and no wage raise)
unexpected deflation = employees better off (lower prices and no wage change)

Question 21

Redistribution of Wealth

Answer 21

unexpected inflation- consumer wins, bank loses
unexpected deflation- consumer loses, bank wins

Question 22

4 problems of inflation/ deflation

Answer 22

redistribution of income
redistribution of wealth
lowers Real GDP & employment
diverts resources from production

Question 23

hyperinflation

Answer 23

inflation rate of 50%+ a month

Question 24

Consumer Price Index (CPI)

Answer 24

measure of the average prices paid by urban consumers for a fixed basket of goods/services
(how much your money will buy)

Question 25

GDP Deflator

Answer 25

index of prices of ALL items in GDP (not just 80,000 items in the basket) USES CURRENT YEAR