Inflation and Unemployment

What are the five main types of unemployment?

1.) frictional unemployment

2.) seasonal unemployment

3.) cyclical unemployment

4.) structural unemployment

5.) technological unemployment

(Frictional Unemployment) What is this?

- when people are between jobs, looking for work

- happens even in a booming economy

(Season Unemployment) What is this?

- when industries slow or shut down for a season/make seasonal shifts in production schedule

What are both frictional and seasonal unemployment considered to be?

minor and temporary

(Cyclical Unemployment) What is this?

- rises during downturns and falls during expansion of business cycle

- demand for goods and services determines need for labor

(Cyclical Unemployment) When was the worst example of cyclical unemployment?

the Great Depression

(Structural Unemployment) What is this?

- when worker's skills do not match jobs available

- development of new technology, discovery of new resources, changes in consumer demand, globalization, lack of education

(Technological Unemployment) What is this?

- when workers are replaced by machines

What is a major measure of economy?

unemployment

How many times a year is a census conducted?

monthly

Who does the labor force include?

civilians 16 and older who work or are looking

What does unemployment rate not include?

seasonal workers

How does unemployment work?

- state by state

- nationally

What are the 3 kinds of unemployed persons/civilian labor force?

1.) full employment

2.) underemployed

3.) discouraged workers

What is full employment?

employment level reached when no cyclical unemployment exists (4-6%)

What is underemployed?

people working but over-qualified for their job or part time employees

What are discouraged workers?

people who have stopped looking for employment

What is inflation?

a general increase in prices

What decreases as prices rise?

purchasing power

What do economists use to measure inflation?

a price index

What is a price index?

- shows average price of a standard group of goods and how it changes over time

- used for personal, business, government policies

What is the Consumer Price Index (CPI)?

- computed each month by Bureau of Labor Statistics

- use goods as a "market basket" to compare to other ones

- items updated every 10 years by surveys to families

What else do economists use to measure inflation?

the inflation rate

What is the inflation rate?

- % of change in price level over time

- formulas used to establish the rate

Which type of inflation measurement do economists use?

CPI

What are the 3 types of inflation?

1.) creeping inflation

2.) chronic inflation

3.) hyperinflation

What is creeping inflation?

- average increase of 1-3% per year

- predictable for government and businesses

What is chronic inflation?

- increases month to month over a long time

What is hyperinflation?

- can go to 100-500% per month, out of control

- Zimbabwe - 1000% per year

What are the three theories about the causes of inflation?

1.) quantity theory

2.) demand-pull theory

3.) cost-push theory

What is the quantity theory?

- too much actual money in the economy

- keep money supply in check to prevent inflation

What is the demand-pull theory?

- inflation occurs when demand for goods and services exceeds existing supplies

What is the cost-push theory?

- inflation occurs when producers raise prices in order to meet increased costs

- resources, usually labor, forces up prices

- can lead to wage-price spiral

What are the effects of inflation?

- damages purchasing power

- hurts income if not matching inflation rate

- hurts people on fixed incomes especially

- affects interest rates in both ways