Unit 2.1 - Price Level Unemployment Flashcards
(23 cards)
Working Age Population (WAP)
Includes everyone eligible to work (Labor Force + Not in Labor Force).
Not in Labor Force (NLF)
People not looking for jobs (e.g., full-time students, retirees).
Labor Force (LF)
Includes both employed and unemployed people.
Employed (E)
People working full-time or part-time.
Unemployed (UE)
Civilians over 16, jobless for at least 4 weeks, actively looking for work.
Unemployment Rate (UEr) Formula
UEr = (Number of Unemployed / Labor force) x 100
Employment Rate (Er) Formula
Er = (Number of Employed / Working Age Population) x 100
Labor Force Participation Rate (LFPR) Formula
LFPR = (Labor Force/ Working Age Population) x 100
Types of Unemployment
- Frictional Unemployment (UeF)
- Structural Unemployment (UeS):
- Cyclical Unemployment (UeC):
- Natural Unemployment (UeN)
Frictional Unemployment (UeF)
Short-term unemployment due to job transitions (e.g., fresh graduates).
Skills are transferable.
Structural Unemployment (UeS)
Long-term unemployment caused by economic changes (e.g., automation).
Skills are not transferable.
Cyclical Unemployment (UeC):
Unemployment caused by economic downturns (e.g., recessions).
Difference between the actual unemployment rate and the natural rate.
Natural Unemployment (UeN)
Combination of frictional and structural unemployment.
Full Employment
Achieved when the unemployment rate equals the natural unemployment rate
Price Levels
Represent the weighted average of all goods and services in an economy.
Help measure overall economic health.
Consumer Price Index (CPI)
Measures inflation by tracking price changes of a fixed basket of goods and services.
Useful for analyzing cost-of-living changes.
Inflation Vs Deflation
Inflation: Rising price levels; reduce purchasing power.
Deflation: Falling price levels; increase purchasing power.
Nominal vs. real Income
Nominal Income: Dollar amount earned without adjusting for inflation.
Real Income: Adjusted for inflation, showing true purchasing power.
CPI Formula
Percentage % Change in Prices
Real Income Analysis
Real income shows how well wages keep up with inflation.
If inflation > income growth: Purchasing power drops.
If inflation < income growth: Purchasing power rises.
Fixed Market Baskets
Ensures consistent CPI calculation over time for accurate inflation tracking.
Policy Implications
Persistent inflation may lead to higher interest rates to stabilize the economy.
Deflation might encourage government spending to boost demand.
