Inflation and unemployment

Question 1

What does rising inflation do to the cost of holding money?

Answer 1

Increases the cost.

Question 2

What are the causes of inflation?

Answer 2

Rising wages

Question 2

What is the equation of actual inflation?

Answer 2

Actual inflation= output gap inflation + expected inflation + supply shock inflation

Question 3

What are the reasons for rising wages?

Answer 3

Output gap and expectation of future inflation.

Question 4

What is demand-pull inflation and cost-push inflation?

Answer 4

Demand-pull inflation is the inflationary gap caused by a rightward shift in the AD curve.
Cost-push inflation is caused by an increase in the production costs caused by a shift left in the SRAS curve.

Question 5

What is frictional unemployment?

Answer 5

It is looking for a job and not finding one because of inefficiencies in the market.

Question 6

What is seasonal unemployment?

Answer 6

Workers can’t fill available jobs because of a lack of skills or don’t happen to live where the jobs are located.

Question 7

What is cyclical unemployment?

Answer 7

Business cycle- economic downturn especially but also economic upturn.

Question 8

NAIRU

Answer 8

non-accelerating inflation rate of unemployment
NAIRU= structural unemployment + frictional unemployment + seasonal unemployment

Question 9

Why is NAIRU important and what about the changes of it?

Answer 9

NAIRU is the unemployment rate at potential GDP.
Factors affecting NAIRU are demographic changes, globalization, hysteresis and labor-market flexibility.