macroeconomics ch 6 prices & unemp
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| Price Level | a weighted average of prices of ALL goods and services; y-axis
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| Price Index | a measure of the price level
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| Consumer Price Index (CPI) | a major price index; Qty's are fixed; is based upon a representative group of goods and services purchased by a typical household (called the market basket); a widely cited index number for the price level; CPI is base yr is always 100
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| CPI formula & % change in price | ((total dollar expenditure on market basket <current yr>) /
(total dollar expenditure on market basket <base yr>) = CPI
to get the % change in price =
((CPI <current yr> - CPI <past yr>)/(CPI <past yr>)) x 100
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| Market Basket | 8 categories: 1. food/beverages, 2. housing, 3. apparel, 4. transportation, 5. medical care, 6. recreation, 7. education & communication, 8. other goods & services
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| Base year | anchor yr; the chosen year as a pt of reference or basis of comparison for prices in other yrs; a benchmark yr; CPI in base yr is 100
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| Inflation | an increase in the Price Level or price index; during inflation Price Level goes up and PP$ goes down, debtors gain and creditors lose; helps people in debt
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| inflation rate | the positive %age change in the price level on an annual basis
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| deflation | a decrease in the Price Level or price index; during deflation Price Level goes down and PP$ goes up, creditors gain and debtors lose; helps creditors
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| convert earlier yr to current yr | dollar amount (earlier yr) x ((CPI <current yr>/(CPI <earlier yr)) = dollar amount in today's <current> dollar
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| Purchasing Power (PP$) | a given dollar amount in an earlier yr does not have the same purchasing power in a later yr <current yr> if prices are different in the 2 yrs
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| real income | a person's nominal income adjusted for any changes in price; formula = (nominal income/CPI) x 100
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| nominal income | current dollar amount of income
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| GDP Deflator/GDP Implicit Price Deflator | is based upon ALL goods and services produced in an economy; GDP prices are fixed;
(nominal/real) x 100 = GDP Deflator
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| unemployed person | job loser, a job leaver, a reentrant, or a new entrant
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| unemployment rate | may be biased downward b/c discouraged workers are not considered unemployed; the %age of the population that is unemployed = (# of unemployed persons/civilian labor force) x 100
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| employment rate | %age of civilian noninstitutional population that's employed = # of employed persons/civilian noninstitutional population
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| labor force participation rate | the %age of the civilian noninstitutional population that's in the civilian labor force = civilian labor force/civilian noninstitutional population
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| frictional unemployment (normal) | due to the natural so-called frictions of the economy, caused by changing market conditions & is represented by qualified indivs w/ transferable skills who change jobs; u don't know about ea other
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| structural unemployment (normal) | due to the structural change in the economy that eliminate some jobs & create others for which the unemployed are unqualified; creative destruction
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| cyclical unemployment (bad) | the different between the existing unemployment rate & the natural unemployment rate; aka business cycle b/c up & down in Real GDP; x-axis = Time, y-axis = Real GDP; full cycle = peak - peak
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| cycles of cyclical unemployment | expansion (going up)- increasing hiring, peak (top), recession (going down), contraction (still going down) - no hiring, trough (very bottom)
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| natural unemployment | caused by frictional and structural factors in the economy
rate = frictional unemp rate + structural unemp rate
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| full employment | the condition that exists when the unemployment rate is equal to the natural unemployment rate
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