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Questions and Answers

What are the consequences of unemployment on individuals?

  • Improved job prospects
  • Loss of income and permanent damage to job prospects (correct)
  • Increased human capital
  • Higher levels of job satisfaction

    • Which group is NOT part of the working-age population?

  • People aged 16 years and older not in institutions
  • Individuals currently employed
  • People aged under 16 years (correct)
  • People who are self-employed

    • What criteria classify someone as unemployed?

  • Voluntarily not working due to personal choice
  • Working part-time but seeking full-time employment
  • Retired but looking for part-time work
  • Not working but actively searching for a job (correct)

    • What is one of the main purposes of the Current Population Survey conducted by the U.S. Census Bureau?

    <p>To determine the status of the U.S. labor force</p> Signup and view all the answers

    What benefit might individuals receive during unemployment?

    <p>Employment benefits</p> Signup and view all the answers

    Which of the following describes the labor force?

    <p>The sum of employed and unemployed workers</p> Signup and view all the answers

    What is a characteristic of individuals 'waiting to be called back' in the unemployment category?

    <p>They have been laid off from a previous job</p> Signup and view all the answers

    What is the significance of job growth post-recession in 2008 and 2009 for the U.S. economy?

    <p>It highlights the importance of job stability and security.</p> Signup and view all the answers

    What defines full employment in an economy?

    <p>The unemployment rate equals the natural unemployment rate</p> Signup and view all the answers

    Which of the following factors can influence the natural unemployment rate?

    <p>The age distribution of the population</p> Signup and view all the answers

    What does potential GDP represent?

    <p>The quantity of real GDP produced at full employment</p> Signup and view all the answers

    How is the output gap defined?

    <p>The difference between real GDP and potential GDP</p> Signup and view all the answers

    What happens when the output gap is negative?

    <p>The unemployment rate exceeds the natural unemployment rate</p> Signup and view all the answers

    Why is unpredictable inflation considered a problem?

    <p>It redistributes income and wealth arbitrarily</p> Signup and view all the answers

    What is the definition of deflation?

    <p>A persistently falling price level</p> Signup and view all the answers

    Which of the following best describes a risk of unpredictable deflation?

    <p>It diverts resources from production</p> Signup and view all the answers

    What are the main characteristics of a discouraged worker?

    <p>They are marginally attached and have stopped job hunting.</p> Signup and view all the answers

    Which type of unemployment arises due to the normal turnover in the labor market?

    <p>Frictional unemployment</p> Signup and view all the answers

    What is meant by economic part-time workers?

    <p>Part-time workers who prefer working full-time but are unable to find full-time positions</p> Signup and view all the answers

    What is the most costly form of unemployment?

    <p>Long-term unemployment resulting from job loss</p> Signup and view all the answers

    Which type of unemployment is characterized by job loss due to technological changes or foreign competition?

    <p>Structural unemployment</p> Signup and view all the answers

    How is natural unemployment defined?

    <p>All unemployment that doesn't include cyclical unemployment</p> Signup and view all the answers

    What characterizes cyclical unemployment?

    <p>A fluctuation in unemployment correlating with economic cycles</p> Signup and view all the answers

    Increasing the number of people entering the labor force is likely to affect which type of unemployment?

    <p>Natural unemployment</p> Signup and view all the answers

    What was the unemployment rate in June 2012?

    <p>8.2 percent</p> Signup and view all the answers

    What does the employment-to-population ratio represent?

    <p>The percentage of working-age population that is employed</p> Signup and view all the answers

    How is the labor force participation rate calculated?

    <p>Labor force ÷ Working-age population</p> Signup and view all the answers

    What was the employment-to-population ratio in June 2012?

    <p>58.45 percent</p> Signup and view all the answers

    Which group is excluded from the official unemployment rate calculation?

    <p>Part-time workers wanting full-time jobs</p> Signup and view all the answers

    Who are marginally attached workers?

    <p>Individuals wanting jobs but not currently looking for work</p> Signup and view all the answers

    Which of the following best describes the labor force in June 2012?

    <p>155 million</p> Signup and view all the answers

    What is the total working-age population in June 2012?

    <p>243.4 million</p> Signup and view all the answers

    What is a cost of high inflation from a social perspective?

    <p>Diversion of resources to inflation forecasting</p> Signup and view all the answers

    What characterizes hyperinflation?

    <p>A rapid increase in prices requiring workers to be paid multiple times a day</p> Signup and view all the answers

    How is the Consumer Price Index (CPI) for a reference base period defined?

    <p>It is equal to 100 for the reference base period.</p> Signup and view all the answers

    What was the CPI value in June 2012, and what does it represent?

    <p>228.8, meaning prices were 128.8% higher than the base period</p> Signup and view all the answers

    What component makes up the largest part of the CPI basket?

    <p>Housing</p> Signup and view all the answers

    Which is NOT a stage involved in constructing the CPI?

    <p>Calculating inflation projections</p> Signup and view all the answers

    How many goods are checked each month for the CPI calculation?

    <p>80,000</p> Signup and view all the answers

    What is the purpose of the Consumer Expenditure Survey?

    <p>To construct the CPI basket</p> Signup and view all the answers

    What was the cost of the CPI basket in the base period?

    <p>$50</p> Signup and view all the answers

    How is the CPI calculated?

    <p>CPI = (Cost of basket at current-period prices ÷ Cost of basket at base-period prices) × 100</p> Signup and view all the answers

    What is the inflation rate if the CPI this year is 140 and the CPI last year was 100?

    <p>40%</p> Signup and view all the answers

    Which of the following is true about the PCE deflator?

    <p>It includes all consumption expenditures.</p> Signup and view all the answers

    How does the GDP deflator differ from the PCE deflator?

    <p>It includes the prices of all goods and services counted in GDP.</p> Signup and view all the answers

    What is the formula for calculating the real wage rate?

    <p>Real wage rate = (Nominal wage rate ÷ GDP deflator) × 100</p> Signup and view all the answers

    If the CPI this year is 140 and last year it was 130, what is the inflation rate?

    <p>6.67%</p> Signup and view all the answers

    What is NOT included in the CPI calculations?

    <p>Real estate</p> Signup and view all the answers

    Study Notes

    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.

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