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MACRO > Chapter 7 > Flashcards

Chapter 7 Flashcards

1
Q

what is the working age population

A

age 15 and up

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2
Q

employed

A

working full time or part time at a paid job

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3
Q

unemployed

A

not doing paid work and actively searching for a job or on temporary lay off or about to start a new job

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4
Q

not in the labour force

A

does not fit into employed or unemployed categories (full time students, homemakers, retiree)

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5
Q

unemployment rate formula

A

unemployed/ labour force x100

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6
Q

labour force formula

A

employed + unemployed

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7
Q

labour force participation rate

A

labour force/ working age population x100

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8
Q

unemployment rate misses

A
  1. involuntary part-time workers
  2. discouraged workers
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9
Q

frictional unemployment

A
  • due to normal labour turnover and job search
  • HEALTHY
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10
Q

structural unemployment

A
  • due to technological change or international competition making worker’s skills outdates/ useless
  • HEALTHY
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11
Q

seasonal unemployment

A
  • due to seasonal changes in weather
  • HEALTHY
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12
Q

cyclical unemployment

A
  • due to business cycle fluctuations in economic activity
  • UNHEALTHY
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13
Q

natural rate of unemployment

A
  • unemployment rate at FULL EMPLOYMENT
  • full employment is not 0% unemployment but 0% cyclical unemployment
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14
Q

when real GDP = potential GDP

A

output gap: NONE
unemployment rate: natural rate of unemployment (full employment)

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15
Q

when real GDP is below potential GDP

A

output gap: RECESSIONARY GAP
unemployment rate: above natural rate (cyclical unemployment)

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16
Q

when real GDP is above potential GDP

A

output gap: INFLATIONARY GAP
unemployment rate: below natural rate (less than normal healthy unemployment)

17
Q

inflation

A

both a peristent rise in average prices and a fall in the value of money

ALWAYS CAUSED BY THE INCREASE IN QUANTITY OF MONEY

  • when inflation occurs:
    1. you must spend more to get the same products and services as before
    2. your money is worth less
18
Q

consumer price index (CPI)

A
  • measure of average prices of fixed shopping basket of products

formula: basket total cost current year/ basket total cost base year x100

  • CPI fixed quantities in the shopping basket to isolate the impact of changing prices only on cost of living
  • inflation rates based on the CPI overstates increases in cost of living
19
Q

inflation rate

A

annual % change in CPI

formula: inflation = CPI for current year -CPI for previous year/ CPI for previous year x100

20
Q

nominal interest rate

A

observed interest rate that equal # of $’s received per year in interest as % of # of $ saved

21
Q

real interest rate

A
  • nominal interest rate adjusted for effects on inflation
  • nominal interest rate - inflation rate
22
Q

deflation

A

persistent fall in average prices and a rise in value of money

  • deflation benefits savers but hurts borrowers and is worse than low inflation
23
Q

FORMULA FOR ANY ECONOMY WITH MONEY

A

M x V = P x Q (real GDP)

M: quantity of money
V: velocity of money
P: average price
Q: aggregate quantity of real output

P x Q represents nominal GDP

24
Q

velocity of money

A

number of times per year a dollar is spent on final goods and services

25
Q

quantity theory of money

A

states that an increase in the quantity of money causes an equal % increase in the inflation rate

26
Q

2 assumptions of the quantity theory of money

A
  1. takes equation M x V = Px Q and fixes V at potential GDP
  2. fixes Q at potential GDP
27
Q

Phillips Curve

A

the higher the unemployment rate, the lower the inflation rate … INVERSE RELATIONSHIP

28
Q

demand pull inflation

A

rising average prices caused by increases in demand

  • the phillips curve is consistent with the story of demand pull inflation
  • causes expansion, demand is a key force causing shortages and pulling up prices for inputs like wages and for outputs
29
Q

cost push inflation

A

rising average prices caused by decreases in supply which DOES NOT fit the phillips curve

  • caused by SUPPLY SHOCKS: events directly affecting business’ costs of prices and supply
  • causes contractions in the economy by increasing both unemployment and inflation due to the decease in supply which forces the pushing up of output prices
30
Q

stagflation

A

caused by cost push inflation

  • the combination of recession (higher unemployment) and inflation (higher average prices)

MACRO (9 decks)

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