Untitled Quiz

Economics

• This is a textbook or course material on economics.
• The Eleventh Edition of the textbook is authored by Michael Parkin.
• The book is a global edition

Monitoring Jobs and Inflation

• The material discusses measuring unemployment and inflation as indicators of the U.S. economy's health.
• How unemployment and inflation rates are calculated is discussed.
• The reliability of these measurements in reflecting the economy's health is questioned.
• The weak job growth in the U.S. after the 2008-2009 recession is mentioned.

Employment and Unemployment

• Why Unemployment is a Problem: Unemployment results in lost income and production, and loss of human capital.
• Unemployment benefits are a safety net but don't fully replace lost wages, and not everyone receives them.
• Prolonged unemployment permanently harms job prospects by destroying human capital.
• Current Population Survey: The U.S. Census Bureau conducts a monthly survey to determine the status of the U.S. labor force.
• The population is divided into working-age and non-working-age groups.
• Working-age population: Individuals aged 16 and older, excluding those in jail, hospital, or other institutions.
• Labor force: The sum of employed and unemployed workers.
• To be unemployed: A person must be without work but actively searching for work in the past four weeks, waiting to return to a previous job, or waiting to start a new job within 30 days.
• 2012 Data The population in June 2012 was 314 million, with 243.4 million of working age. The total labor force was 155 million; employed workers were 142.2 million; unemployed workers were 12.8 million.

Employment and Unemployment - Key Indicators

• Unemployment rate: The percentage of the labor force that is unemployed. (Number of unemployed / labor force) * 100.
• In June 2012 the rate was 8.2%
• Employment-to-population ratio: Percentage of the working-age population with jobs. (Employment / working-age population)* 100.
  • In June 2012 this was 58.45%.
• Labor force participation rate: Percentage of the working-age population in the labor force. (Labor force / working-age population)* 100.
  • In June 2012 this was 63.7%.

Employment and Unemployment Definitions

• The unemployment rate is designed to measure underutilization of labor resources.
• The current measure excludes:
• Marginally attached workers: People who aren't working or looking for work but want and are available for a job and have looked for work recently. Some are discouraged workers who have stopped looking for a job due to repeated failure.
• Part-time workers who want full-time jobs: Officially considered economic part-time workers and partially unemployed.

Unemployment and Full Employment

• Unemployment types: Frictional, structural, cyclical.

• Frictional unemployment: Arises from normal labor market turnover. People are searching for jobs in a changing job market

• Structural unemployment: Results from technological change, foreign competition, or changing job locations affecting worker skills. This unemployment lasts longer than frictional.

• Cyclical unemployment: Is higher than normal during economic downturns (recessions) and lower than normal during economic booms.

• Natural unemployment: The unemployment rate when there is no cyclical unemployment, including frictional and structural unemployment.

• Full employment: A situation where the unemployment rate equals the natural unemployment rate. There is no cyclical unemployment

• Key factors influencing natural unemployment rates: Age distribution of the population, the scale of structural change, the real wage rate, and unemployment benefits.

Real GDP and Unemployment

• Potential GDP: The quantity of real GDP produced at full employment.
• Potential GDP: Corresponds to the economy's capacity to produce output on a consistent basis.
• Output gap: Represents the difference between Real GDP and Potential GDP. Fluctuates with the business cycle.
• Unemployment rate fluctuations: Changes around the natural unemployment rate in line with the output gap.

Price Level, Inflation, and Deflation

• Price level: Average level of prices and the value of money.
• Inflation: A persistently rising price level.
• Deflation: A persistently falling price level.
• Why are predictable inflation/deflation not a problem? Unpredictable inflation/deflation are problems because they redistribute income, wealth, lower real GDP and employment, divert resources.
• Hyperinflation: A very rapid inflation rate; workers are paid frequently because money loses its value.

Consumer Price Index (CPI)

• The CPI measures the average prices paid by urban consumers for a "fixed" basket of consumer goods and services.
• The reference base period is 1982-1984, with a CPI of 100.
• CPI for June 2012 was 228.8.
• CPI construction: Selecting the CPI basket, conducting monthly price surveys, and calculating CPI values.
• CPI basket constituents: Housing (largest component); Transportation and food & beverages (next largest components); other components account for 26%.
• Monthly price surveys: BLS employees check the prices of 80,000 goods in the CPI basket in 30 metropolitan areas every month.

CPI Calculation

• CPI calculation formula: (Cost of basket at current-period prices / Cost of basket at base-period prices) * 100
• The base year is the period against which the price increase or decrease is measured. The chosen base period has a defined CPI of 100.

Inflation Rate Measurement

• The inflation rate represents the price level change from one year to the next.
• Inflation rate calculation formula: [(CPI this year - CPI last year) / CPI last year] * 100

Other Price Level Measures

• Personal Consumption Expenditure (PCE) deflator: A broader measure of the price level than CPI, including all consumption expenditure.
• GDP deflator: Similar to the PCE deflator, but includes prices of all goods and services included in GDP

Real Variables in Macroeconomics

• Using the deflator to convert nominal variables into real values.
• Example of calculating real wage rate: (Nominal wage rate / GDP deflator)* 100.