Economics Chapter 20

unemployment and inflation

Unemployed -- people who are looking for work but do not have jobs
employed -- people with jobs
labor force -- the employed plus the unemployed that are looking
unemployment rate -- a fraction of the labor force that is unemployed
labor force participation rate -- the fraction of the population over 16 years of age that is in the labor force
discouraged workers -- workers who left the labor force because they could not find jobs
marginally attached workers -- individuals who have worked in the past to stop working for a variety of reasons
seasonal unemployment -- the component of unemployment attributed to seasonal factors
cyclical unemployment -- the component of unemployment that accompanies fluctuations in real GDP
fractional unemployment -- the part of unemployment associated with the normal workings of the economy, such as searching for jobs
structural unemployment -- a component of unemployment reflecting a mismatch of skills and jobs
full employment -- the level of employment that occurs when the unemployment rate is that the natural rate
unemployment insurance -- payments received from the government upon becoming unemployed
consumer Price Index (CPI) -- a price index that measures the cost of a fixed basket of goods chosen to represent the consumption pattern of individuals
cost-of-living adjustment (COLAs) -- automatic increases in wages or other payments that are tied to a price index
inflation rate -- the percentage rate of change in the price level
deflation -- negative inflation or falling prices
menu costs -- costs of inflation that arise from actually changing prices
shoe-leather costs -- costs of inflation that arise from trying to reduce holdings of cash
hyperinflation -- an inflation rate exceeding 50% per month

Notes

The unemployed are individuals who did not have jobs or actively seeking employment.

Seasonal, cyclical, fractional, and structural are all different types of our employment.

Unemployment rates vary across groups. Alternative measures of unemployment take into account individuals who would like to work full-time, but wore no longer in the labor force or are holding part-time jobs.

Economists measure change in the cost of living through the Consumer Price Index, which is based on the cost of purchasing a standard basket of goods and services.

We measure inflation as the percentage change in the price level.

Economists believe that most price indices overstate true inflation because they failed to capture quality improvements.

Unemployment imposes both financial and psychological costs on workers.
Both anticipated an unanticipated inflation impose costs on society.