Principles of Economics - Module 7

What is frictional unemployment?

Between jobs, moving towards a better job. (Module 7)

What is structural unempoyment?

Job eliminated, accumulated experience is no longer valued in the labor market.

What is cyclical unemployment?

Laid off due to a recession

How do you calculate the unemployment rate?

(# of unemployed/labor force) x 100

How do you calculate the labor force participation rate?

(labor force / population) x 100

Who is in the labor force?

Those who are employed and those who are actively looking for work.

Another term for having no cyclical unemployment.

Full employment

How are the terms "full employment" and "natural rate of unemployment" related?

Both are used to describe the situation where there is zero cyclical unemployment.

Does full employment mean that there is no unemployment?

No. There will always be frictional and structural unemployment.

What do households do in the factors market?

Households sell land, labor, capital and entrepreneurship in the factors market.

Which groups provide inflows to the financial market?

Financial market inflows are made up of private savings from households and foreign lending from the rest of the world.

What is investment?

business spending on physical capital (tools), new homes, and inventories (products)

Which is the most volatile component of GDP?

Investment spending

Which component of GDP is the largest?

Consumption spending

How do you calculate GDP?

GDP = C + I + G + (X-M)

How do you compare living standards between countries or over time?

Real GDP per Capita

What two groups are hurt by unexpected inflation?

Lenders and those on fixed incomes

Identify three costs of inflation

1. Menu costs

2. Shoe leather costs

3. Loss of purchasing power

What is the most cited measurement of inflation in the US?

Consumer Price Index

What is the difference between nominal and real GDP?

Real GDP is calculated using prices from a selected base year. Nominal GDP is calculated using existing prices. Real GDP is nominal GDP adjusted to remove the influence of inflation.

capital

a factor of production that is made to produce other things (tools, equipment, etc.)

circular flow diagram

a diagram that views the economy as consisting of households and firms interacting in a goods and services market and a factor market