Chapter 5: Monitoring Jobs and Inflation

Question 1

What is the Labour Force Survey?

Answer 1

A survey conducted by Statistics Canada to track the state of the nation’s labour market.

Question 2

What is the working-age population?

Answer 2

The total number of people aged 15 years and over.

Question 3

How is the working-age population divided?

Answer 3

Into two groups: those in the labour force and those not in the labour force.

Question 4

What are the two groups in the labour force?

Answer 4

Employed and unemployed.

Question 5

Define ‘employed’.

Answer 5

A person who has either a full-time job or a part-time job.

Question 6

What are the criteria for being classified as unemployed?

Answer 6

1. Without work but has made specific efforts to find a job within the previous four weeks.
2. Waiting to be called back to a job from which laid off.
3. Waiting to start a new job within four weeks.

Question 7

What are the four labour market indicators calculated by Statistics Canada?

Answer 7

• Unemployment rate
• Involuntary part-time rate
• Labour force participation rate
• Employment rate

Question 8

How is the unemployment rate calculated?

Answer 8

Unemployment rate = (Number of people unemployed ÷ Labour force) x 100

Question 9

What happens to the unemployment rate during recessions and expansions?

Answer 9

It increases in recessions and decreases in expansions.

Question 10

What is the involuntary part-time rate?

Answer 10

The percentage of people in the labour force who have part-time jobs and want full-time jobs.

Question 11

How is the labour force participation rate calculated?

Answer 11

Labour force participation rate = (Labour force ÷ Working-age population) x 100

Question 12

What does the employment rate represent?

Answer 12

The percentage of the working-age population who have jobs.

Question 13

How is the employment rate calculated?

Answer 13

Employment rate = (Number of people employed ÷ Working-age population) x 100

Question 14

What trend occurred in the labour force participation rate and employment rate before 1990?

Answer 14

Both increased rapidly.

Question 15

What accounts for the upward trends in the labour force participation rate and employment rate?

Answer 15

Mainly the increasing participation of women in the labour market.

Question 16

What three types of underemployed labour are excluded from the official unemployment measure?

Answer 16

• Discouraged searchers
• Long-term future starts
• Involuntary part-timers

Question 17

Define ‘discouraged searcher’.

Answer 17

A person who is neither working nor looking for a job but wants and is available for a job and has looked for work recently.

Question 18

What is a ‘long-term future start’?

Answer 18

Someone who will start a job more than four weeks in the future.

Question 19

Define ‘involuntary part-timer’.

Answer 19

Someone working part time because they cannot find full-time employment.

Question 20

What are the three types of unemployment?

Answer 20

• Frictional
• Structural
• Cyclical

Question 21

What is frictional unemployment?

Answer 21

Unemployment that arises from normal labour market turnover.

Question 22

What causes structural unemployment?

Answer 22

Changes in technology or international competition that change the skills needed for jobs or the locations of jobs.

Question 23

What is cyclical unemployment?

Answer 23

Unemployment that fluctuates over the business cycle.

Question 24

What is full employment?

Answer 24

Occurs when there is no cyclical unemployment, meaning all unemployment is frictional and structural.

Question 25

What is the natural rate of unemployment?

Answer 25

The unemployment rate at full employment.

Question 26

What is potential GDP?

Answer 26

The quantity of real GDP at full employment.

Question 27

What happens to real GDP and the unemployment rate at full employment?

Answer 27

Unemployment rate equals the natural rate of unemployment and real GDP equals potential GDP.

Question 28

What occurs when the unemployment rate is less than the natural rate of unemployment?

Answer 28

Real GDP is greater than potential GDP.

Question 29

What occurs when the unemployment rate is greater than the natural rate of unemployment?

Answer 29

Real GDP is less than potential GDP.

Question 30

What is the Consumer Price Index (CPI)?

Answer 30

A measure of the average prices paid by urban consumers for a fixed basket of consumer goods and services.

Question 31

What is the base period in relation to the CPI?

Answer 31

The period defined to equal 100 for CPI calculations.

Question 32

What are the three stages of constructing the CPI?

Answer 32

* Selecting the CPI basket * Conducting the monthly price survey * Calculating the CPI

Question 33

What is the formula for calculating the CPI?

Answer 33

CPI = (Cost of CPI basket at current period prices ÷ Cost of CPI basket at base period prices) × 100

Question 34

How is the inflation rate calculated?

Answer 34

Inflation rate = [(CPI this year – CPI last year) ÷ CPI last year] x 100

Question 35

What are the main sources of bias in the CPI?

Answer 35

* New goods bias * Quality change bias * Commodity substitution bias * Outlet substitution bias

Question 36

What are the consequences of bias in the CPI?

Answer 36

* Distorts private contracts * Increases government outlays * Biases estimates of real earnings

Question 37

What is the GDP deflator?

Answer 37

An index of the prices of all items included in GDP, the ratio of nominal GDP to real GDP.

Question 38

What is the chained price index for consumption?

Answer 38

An index of the prices of all items included in consumption expenditure in GDP, the ratio of nominal consumption expenditure to real consumption expenditure.