Lecture Notes on Unemployment, Inflation, and Policy Mechanisms

A collection of vocabulary flashcards covering key concepts in unemployment, inflation, and economic policy.

Labor Force

Employed people plus officially unemployed people.

Officially Unemployed

An adult civilian, not institutionalized, with no job, who is actively searching.

Underemployment

Working fewer hours than desired or working in a job far below one’s skill level.

Unemployment Rate Formula

Unemployed ÷ labor force × 100.

Labor-force Participation Rate Formula

Labor force ÷ adult population × 100.

Frictional Unemployment

Short-term unemployment caused by normal job search and matching.

Structural Unemployment

Long-term unemployment caused by persistent shocks or labor-market institutions.

Cyclical Unemployment

Unemployment tied to recessions and weak growth.

Minimum Wage

A price floor that can create a surplus of labor, leading to unemployment.

Employment Protection Laws

Laws that protect current workers but can lead to less flexible labor markets and reduced hiring.

Youth Unemployment in France

Higher minimum wages and stricter firing rules discourage youth hiring.

Inflation

A rise in the average price level.

Hyperinflation

Inflation so extreme that money rapidly loses usefulness.

CPI (Consumer Price Index)

The average price of a consumer basket.

Quantity Theory of Money Equation

MV = PY, where M is money supply, V is velocity, P is price level, and Y is real output.

Fisher Effect

Nominal interest rates tend to rise with expected inflation.

Real Interest Rate Formula

Real rate ≈ nominal rate − inflation.

Business Fluctuations

Short-run swings in real GDP growth around trend.

Recession

A broad decline in real income, employment, and output.

Demand Shock

A sudden event that affects the demand for goods and services.

Supply Shock

A sudden event that affects the supply side of the economy.

Expansionary Monetary Policy

Faster money growth, lower rates, and more confidence to support spending.

Central Bank Independence

It helps make anti-inflation promises believable.

Fiscal Policy

Government decisions about taxes, spending, and borrowing.