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ECON MIDTERM > Chapter 9 > Flashcards

Chapter 9 Flashcards

1
Q

What defines being employed?

A

People worked during the week before the survey or if they were temporarily away from their jobs because they were ill, on vacation, on strike, or for other reasons

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2
Q

What defines being unemployed?

A

If someone did not work in the previous week but were available for work at some time during the previous 4 weeks

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3
Q

What is the labor force?

A

Sum of employed and unemployed workers

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4
Q

What is unemployment rate?

A

Percentage of labor force unemployed

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5
Q

What are the BLS classification of “not in the labor force?”

A
  • Retirees, homemakers, full-time students, patients in hospitals, and those on active military service or in prison
  • People available for work and who have actively looked for a job at some point during the previous 12 months, but not previous 4 weeks
  • People available for work but have not actively looked for a job during the previous 4 weeks because they believe no jobs are available for them (discouraged workers)
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6
Q

What is the formula for unemployment rate?

A

Unemployed/labor force * 100

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7
Q

What is labor force participation rate?

A

Percentage of working-age population in the labor force

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8
Q

What is the formula for labor force participation rate?

A

Labor Force/Working-age population * 100

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9
Q

What is the formula for employment-population ratio?

A

Employed/working-age population * 100

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10
Q

What is employment-population ratio?

A

Percentage of working-age population that is employed

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11
Q

What are the problems with measuring unemployment rate?

A
  • Distinguishing people unemployed and not in the labor force
  • BLS does not verify the responses of people included in survey
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12
Q

True or False: People are unemployed for a longer period of time during a recession

A

True

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13
Q

What is the establishment survey?

A

What the BLS uses to measure total employment in the economy. It also provides the total people on payroll

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14
Q

What are the 4 drawbacks of the establishment survey?

A
  1. Provides no information on self-employed people because they are not on company payroll
  2. Fail to count some people employed at newly opened firms that are not included in the survey
  3. No information on unemployed
  4. Employment values BLS announces can be significantly revised as data from additional establishments becomes available
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15
Q

What is the advantage establishment surveys have?

A

They are determined by actual payrolls rather than unverified answers

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16
Q

What is the business cycle?

A

Unemployment rises during recessions and falls during expansions. Never falls below zero

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17
Q

What are the 3 types of unemployment?

A
  1. Frictional Unemployment
  2. Structural Unemployment
  3. Cyclical Unemployment
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18
Q

What is structural unemployment?

A

Unemployment that arises from a persistent mismatch between the skills or attributes of workers and requirements of jobs

19
Q

What is cyclical unemployment

A

Unemployment caused by a business cycle recession

20
Q

What is frictional unemployment?

A

People moving from one job to another

21
Q

What is full employment?

A

When everyone who is able to and willing to work are employed

22
Q

How can the government reduce the level of frictional unemployment?

A

Implementing policies that speed up matching unemployed workers with unfilled jobs

23
Q

How can the government help reduce structural unemployment?

A

Implement policies that aid worker retraining

24
Q

How can government policies increase the unemployment rate?

A

-Increase time workers devote to searching for jobs
- Providing disincentives for firms to hire workers
- Keeping wages above market level

25
Q

What is unemployed insurance payments?

A

The government covering expenses unemployed

26
Q

What is minimum wage laws?

A

When unemployment rate will be higher than it would be without a minimum wage

27
Q

What are labor unions?

A

Organizations of workers that bargain with employers for higher wages and better working conditions

28
Q

What are efficiency wages?

A

When increasing the wages of workers cause increases in profits because the workers are more motivated with the raise

29
Q

What is inflation rate?

A

The percentage increase in the price level from one year to the next

30
Q

Why do we use consumer price index instead of GDP deflators to measure inflation rate?

A

GDP deflator measurement can be too broad

31
Q

What is consumer price index (CPI)?

A

Measure of the average of the prices a typical urban family of 4 pays for the goods and services they purchase

32
Q

What is the formula for CPI?

A

CPI = expenditures in the current year/expenditures in the base year * 100

33
Q

What are the four biases in CPI measurement (explain them)?

A
  1. Substitution bias: Assume people by the same quantities of products
  2. Increase in quality bias: Increases in price partially reflect this
  3. New product bias: Cellphone industry
  4. Outlet bias: Increase purchases from discount stores
34
Q

What is producer price index?

A

An average of the prices received by producers of goods and services at all stages of the production process. So it does include intermediate goods

35
Q

What are nominal variables?

A

Economic variables calculated in current year prices

36
Q

What is the formula for nominal values?

A

Value in current year = Value in past year * CPI in current/CPI in past

37
Q

What is nominal interest rate?

A

The stated interest rate on a loan

38
Q

What is the real interest rate?

A

The nominal interest rate minus the inflation rate. Provides a better measure of the true cost of borrowing and the true return from lending than the nominal interest rate

39
Q

What is deflation?

A

The real interest rate is higher than the nominal interest rate

40
Q

What will happen if income rises more slowly than the rate of inflation?

A

The purchasing power for people will decrease

41
Q

What kind of costs will some individuals and firms experience when inflation is perfectly anticipated?

A
  1. Redistribution of income
  2. Hold paper money (hold as little as possible)
  3. Devote more labor time
  4. Taxes paid by investors will increase
42
Q

How does unexpected high inflation affect borrowers and lenders?

A

Benefits borrowers and harms lenders

43
Q

What are menu costs?

A

The cost to firms of changing prices

ECON MIDTERM (7 decks)

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