quiz 4

cpi, unemployment, inflation

Personal Consumption Expenditure Index

Core inflation

Economic nationalism

Three largest CPI components (as of December 2018)

CPI =

Why does the CPI not accurately measure the cost of living?

Problems in measuring the cost of living

Correcting economic variables for the effects of inflation

Keynesian economists believe…

Keynesian economists are interested in…

Classical economists believe…

Milton Friedman (1912-2006)

To be employed, one must…

Unemployment rate (UR) =

To calculate the LFPR for certain demographic groups…

Structural unemployment

Discouraged worker

Inflation

Consumer Price Index (CPI)

Producer Price Index (PPI)

Relationship between CPI and PPI

GDP deflator

Nominal GDP/Real GDP x 100

Steps to calculate CPI

Inflation is caused by…

Monetarism

Transitional recession

Proof that there is no consistent macroeconomic approach for each country

All civilian, non-institutionalized adults (age 16 and over) are classified into one of three categories

To be unemployed, one must…

To be out of the labor force, one must…

Labor force =

To be part of the labor force, one must…

Total population =

Labor force participation rate (LFPR) =

Types of unemployment

Seasonal unemployment

Frictional unemployment

Cyclical unemployment

Natural rate of unemployment

Full employment

Is the unemployment rate measured correctly?

Alternative measures of unemployment

Price index that measures the total spending by consumers for goods and services during a specified period of time; often referred to as "moving average" or "chain dollars"

Inflation minus food and energy prices

00:06

01:08

Emphasis on domestic control of the economy

- Housing (42.202%)

- Transportation (16.348%)

- Food & Beverages (14.314%)

(Cost of a basket in a given year / Cost of a basket in a base year) * 100

People are elastic; they are not predictable and frequently change their decisions.

1. Substitution bias (people generally prefer less expensive goods and services)

2. Quality bias (CPI does not measure the quality of goods and services)

3. New product bias (fixed baskets don't include new products)

To inflate the variable:

Present price = Past price * (Present CPI / Past CPI)

To deflate the variable:

Past price = Present price * (Past CPI / Present CPI)

“an increase in any of the components of aggregate demand (effective demand) could lead to inflation.”

…the real sector of the economy.

"inflation can be caused by shifts in aggregate supply."

Economist who developed the theory of monetarism; claimed that "inflation is always and everywhere a monetary phenomenon."

…be enrolled in ≥1 hour of paid work or ≥15 hours of non-paid work in the last week.

Unemployed/Labor force * 100

…divide by the value for that same group!

Caused by changes in the industrial makeup of the economy, including tastes and preferences for skills by employers and automation

Someone who has been looking for a job but has given up; no longer part of the labor force.

Mastered (8)

You've been getting these terms right!

Select these 8

Increase in the overall price level; decrease in purchasing power

A measure of the cost of a fixed basket of goods and services purchased by a typical consumer; reported by the Bureau of Labor Statistics (BLS) every month

A measure of the cost of a fixed basket of goods and services purchased by a typical producer; reported by the Bureau of Labor Statistics (BLS) every month

Positive

Price index that measures price changes in GDP over time.

Inflation rate

Annual percent change in CPI

1. Fix the basket

2. Find the price of each good in each year

3. Compute the basket's cost in each year

4. Choose a base year and compute the CPI

5. Calculate the inflation rate

…increases in aggregate demand (shown by a rightward shift in AD curve).

Not studied (18)

You haven't studied these terms yet!

Select these 18

The belief that the only thing that can increase aggregate demand is an increase in the supply of money

Restructuring of economies from planned toward free market resulted in hyperinflation because prices were no longer contained (price liberalization) in countries that formed after the collapse of the Soviet Union.

After the collapse of the Soviet Union, when Poland followed monetarism and cut their money supply, they rebounded quickly, becoming one of the first successful reformed countries.

However, when Ukraine went through the same problem and followed Poland's example, they had the opposite effect, as inflation doubled.

- Employed

- Unemployed

- Out of the labor force

…be out of a job but actively searching for one in the last 4 weeks.

…be out of a job and not actively searching for one.

Employed + Unemployed

…be both willing and able to work.

Labor force + Out of the labor force