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Macroeconomics 7

The result of this is that the economy operates inside its production possibilities curve.
unemployment
This includes people older than 16, both unemployed and employed
labor force
What is the labor force?
The total number of employed and unemployed people.
Unemployment is the total number of…
adults who are looking for work but have not found a job
What are discouraged workers?
Individuals who have stopped looking for work because they are convinced that they will not find a job are considered
How is the unemployment rate calculated?
unemployed divided by the number of people in the civilian labor force
Official unemployment rates may underestimate the true rate of unemployment because the official rate…
fails to include discouraged workers
stock variable
quantity measured at a give point in time (ex. amount in bank account)
flow
quantity measured per unit of time (ex. income per week)
What is the largest category of the unemployed?
job losers
What is a cost of unemployment?
output lost due to the fact that the economy is not running at full employment
Is unemployment stock or flow concept?
stock
frictional unemployment
caused due to the fact that it takes time to search/apply for jobs
structural unemployment
jobs not needed in a certain skill area (ex. factory workers replaced by machines)
cyclical unemployment
results from business recessions
With regard to employment status, the adult population is divided into what three groups?
the employed, the unemployed, and those not in the labor force.
What are the four criteria used by the Bureau of Labor Statistics to determine whether an individual is unemployed or not?
job leavers, job losers, new entrants, reentrants
seasonally unemployed
ex. construction workers, tourism industries
full employment
The level of unemployment that corresponds to the normal friction in the labor market
The natural rate of unemployment does NOT include which type of unemployment?
cyclical unemployment
full employment means that…
taking seasonal fluctuations into account, only frictional and structural unemployment
exist
deflation
A sustained decrease in the average of all prices of goods and services in the economy
PPI
producer price index:The statistical measure of a weighted average of prices of goods and services that firms produce and sell is known as
inflation
the average of all prices are on a sustained rise over a period of time
How are the rate of inflation and the purchasing power of money related?
inversely
purchasing power
value of your money in terms of buying goods/services
nominal value of a good
price of a good in today’s dollars
price index formula
(cost of market basket today/cost of market basket in base year) × 100.
CPI
consumer price index:the level of prices with respect to goods and services purchased by a typical consumer in urban areas
What does a price index show?
the cost of today?s goods expressed in terms of the cost of goods in a base year
The broadest indication of economy-wide inflation is captured by the…
Gross Domestic Product (GDP) deflator
Which measure gives the earliest waning of increasing inflation?
The Producer Price Index
The price index that measures the changes in prices of ALL goods and services produced by the economy is the
GDP deflator
PCE
Personal Consumption Expenditure Index: measure of average prices that uses annually updated weights based on surveys of consumer spending
What is the relationship between the PPI and the CPI?
the PPI usually increases before the CPI
real rate of interest
= nominal rate of interest – anticipated rate of inflation
GDP deflator
price index measuring the changes in prices of all new goods and services produced in the
economy
For the CPI. the value of the index in the base year always equals…
100
he index that is not based on a fixed market basket of goods and services is the
the GDP Price Deflator
The price index for any designated base year must always equal…
100
The term ?market basket? means a
collection of goods that is used by a typical family
Unanticipated positive inflation will create ___ for creditors
losses
Unanticipated positive inflation will create ___ for debtors
gains
With respect to the interest rate, the inflationary premium
covers anticipated depreciation in purchasing power
What is a COLA?
an automatic increase in wages that takes into account increases in the price level
In sequential order, the four phases of the business cycle are
peak, contraction, trough, expansion
peak phase of the business cycle represents
a temporary maximum output level of Gross Domestic Product (GDP)
expansions
When economy-wide business activities are increasing
When economy-wide business fluctuations are negative, they are referred to as
contractions/recessions
contractions
a downward movement toward a trough in economic activity

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