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ECO105 MACRO > chapter 7 > Flashcards

chapter 7 Flashcards

1
Q

Unemployed

A

not employed and actively seeking work

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2
Q

Employed

A

working full-time or part-time at a paid job

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3
Q

Work force

A

employed + unemployed

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4
Q

Unemployment rate formula

A

(unemployed/labor force) x 100

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5
Q

Labor force participation rate

A

percentage of working-age population in the labor force (employed or unemployed)

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6
Q

Labor force participation rate formula

A

(labor force/working-age population) x 100

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7
Q

Involuntary part-time workers

A
  • some workers who are employed part-time would rather have a full-time job, but can’t find one
  • they don’t show up on official unemployment rate
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8
Q

Discouraged workers

A
  • those who want to work, but have given up actively searching for jobs
  • The number of discouraged workers tends to increase in recessions and decrease in expansions
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9
Q

Unemployment rate and discouraged workers

A

As the economy beings expanding, the unemployment rate often increases even as the economy is creating more jobs, because previously discouraged workers get encouraged and re-enter the labor force actively seeking work again

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10
Q

Regional differences

A

the unemployment rate average hides regional differences in unemployment rates across Canada

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11
Q

Types of unemployment

A
  1. Frictional Unemployment
  2. Structural Unemployment
  3. Seasonal Unemployment
  4. Cyclical Unemployment
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12
Q

Healthy unemployment types

A
  1. Frictional Unemployment
  2. Structural Unemployment
  3. Seasonal Unemployment
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13
Q

Frictional Unemployment

A
  • due to normal labor turnover and job search; healthy part of a changing economy
  • Caused by workers between or searching jobs
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14
Q

Structural Unemployment

A
  • due to technological change or international competition that makes workers’ skills obsolete
  • there is a mismatch between the skills workers have and the skills new jobs require
  • Workers who are structurally unemployed need to retrain to find new and different jobs
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15
Q

Seasonal Unemployment

A
  • due to seasonal changes in weather
  • Not a problem needing a policy solution
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16
Q

Cyclical Unemployment

A
  • due to fluctuations in economic activity over the business cycle
  • Workers who lose their jobs because of contraction in economic activity
  • Needs fixing from the government, either monetary or fiscal policy
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17
Q

Natural rate of unemployment (full employment)

A

unemployment rate at full employment, when there is only frictional, structural and seasonal unemployment (all the healthy types of unemployment)

zero percent cyclical employment

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18
Q

If the economy is at full employment (with no cyclical unemployment) real GDP =

A

potential GDP

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19
Q

Recessionary Gap

A
  • when the economy contracts and real GDP falls below potential GDP
  • There are unemployed inputs, so real GDP is less than potential GDP
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20
Q

Inflationary Gap

A
  • when the economy expands and real GDP temporarily rises above potential GDP
  • Inputs are fully employed and the economy is working overtime
  • Unemployment rate decreases below the natural rate and more workers are employed, so levels of healthy unemployment drop below normal levels
21
Q

Inflation

A

a persistent rise in the average price level and a fall in the value of money

22
Q

Consumer Price Index

A

measures the monthly change in prices paid by consumers.

23
Q

Inflation rate

A

annual percentage change in the Consumer Price Index

24
Q

Inflation Rate Formula

A

((CPI for current year - CPI for previous year)/CPI for previous year) x 100

25
Q

Core Inflation Rate

A

inflation rate excluding unpredictable categories

26
Q

Why is inflation important

A
  1. inflation reduces purchasing power of unchanged dollar incomes
  2. inflation affects the purchasing power of a loan and interest received or paid
  3. Unpredictable prices discourage planning and investment
27
Q

Nominal interest rate

A

observed interest rate; equal to the number of dollars received per year in interest as a percentage of the number of dollars saved

28
Q

Real interest rate

A

nominal interest rate adjusted for effects of inflation, calculates the purchasing power you have gained or lost at the end of a loan → more important for making smart saving and investing decisions

29
Q

Acceptable inflation

A

Low inflation rate, between 1-3%

30
Q

Deflation

A

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

31
Q

Deflation impact on savers

A

deflation increases the purchasing power of any money you have in the bank, which benefits savers

32
Q

Deflation impact on borrowers

A

hurts borrowers because when they pay back loans, they are paying back more valuable dollars (in purchasing power) than the dollars they borrowed

33
Q

During deflation, asset values

A

fall

34
Q

What does inflation rate miss?

A
  1. Standard of living vs Cost of living
  2. Switching to cheaper substitutes
  3. New and better products
35
Q

Money (M)

A

consumers use money income earned in input markets to buy the products and services they want

36
Q

Velocity of Money

A

number of times unit of money changes hands during a year

37
Q

P x Q

A

nominal GDP, which also equals aggregate income

38
Q

Quantity theory of money formula

A

M x V (fixed) = P x Q (fixed)

39
Q

Quantity theory of money

A

increase in the quantity of money causes an equal percentage increase in the inflation rate

40
Q

Relationship between money and inflation

A

There cannot be inflation in the economy as a whole unless there is an accompanying increase in the quantity of money

41
Q

Phillips Curve

A

graph showing an inverse relation between unemployment and inflation
* When the unemployment rate was lower, the inflation rate was higher
* When the unemployment rate was higher, the inflation rate was lower

42
Q

Demand-pull inflation

A

rising average prices caused by increases in demand

43
Q

Downward demand-pull deflation

A
  • Decrease in demand pull prices down
  • Decreased demand causes surpluses of unsold products and services, leading businesses to cut prices
44
Q

Supply shocks

A

events directly affecting businesses’ costs, prices and supply

45
Q
A
46
Q

Cost-Push Inflation

A
  • rising average prices caused by decreases in supply
  • A decrease in supply caused by increasing costs is the key force pushing output prices
  • There is also an accompanying increase in the quantity of money
47
Q

Stagflation

A

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

48
Q

Two factors that complicate the original (short-run) Phillips Curve

A
  1. changes in the natural rate of unemployment
  2. changes in inflation expectations
49
Q
A

ECO105 MACRO (9 decks)

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