Unemployment and Inflation

Question 1

Unemployment

Answer 1

1. Want to work
2. Are able to work but do not have a job

Question 2

Labour force

Answer 2

= No. employed + No. unemployed

Question 3

Unemployment Rate

Answer 3

= No. of unemployed/Labour Force X 100

Question 4

Participation Rate

Answer 4

= Labour Force/Adult Pop X 100

Question 5

Underutilised Labour

Answer 5

1. Underemployment
2. Discouraged Workers

Question 6

Types of Unemployment

Answer 6

1. Frictional
2. Structural
3. Demand Deficient: Low demand for labour
4. Wage-Induced: higher wages reduce demand for labour

Question 7

Demand-Pull Inflation

Answer 7

When AD exceeds the economy’s ability to produce goods and services -> firms need to hire more labour to support increased output -> competition b/w firms for smaller pool of highly skilled workers increases -> increases wages as incentive for unemployed -> wages are a cost of production -> higher costs = higher prices -> increases inflation

Question 8

Cost-Push Inflation

Answer 8

increase in production costs (wages) -> firms face higher costs -> firms raise prices to maintain profit margins -> overall prices in economy rise -> inflation increases