Learn: 3.3 Unemployment & Inflation

SL curve

the ability and willingness for workers to supply themselves over a range of average wage rates over a certain period of time, c.p.

SRAS curve

shows the planned output of domestic goods and services over APLs over a certain period of time, c.p.

DL curve

the ability and willingness for firms to hire labor over a range of wage rates over a certain period of time, c.p.

AD curve

illustrates the planned expenditure of domestic goods and services over a range of APLs over a certain period of time, c.p.

LRAS curve

illustrates the total quantity of goods and services produced in an economy in the long run

Keynesian AS

shows the planned output of domestic goods and services over time, ranging from sticky downwards APL when there is a lot of slack in the economy via upwards sloping to vertical long term when the economy has reached full employment level of output and output is independent from APL

Nominal value

A value measured using current prices and not adjusted for inflation or deflation

Export competitiveness

the country's ability to compete with foreign countries in international markets based on price, quantity, and reliability

Consumer Price Index (CPI)

an index that measures changes in the average price of a representative basket of consumer goods and services using weights based on consumer spending

GDP / price deflator

A price index that removes the impact of changes in the price level when measuring macroeconomic variables

Transfers nominal values into real values, correcting for changes in purchasing power

Real value

A value that has been adjusted for changes in the price levels (inflation/deflation)

It reflects changes in actual purchasing power

Deferred consumption

when consumers postpone purchases, often during deflation, as they expect prices to fall further

Weights

the relative importance given to each item in a price index, based on the proportion of consumer expenditure spent on that item

Baskets of goods and services

a representative collection of goods and services typically purchased by households, used to measure changes in the cost of living and calculate CPI

Deflation

A sustained decrease in APL in a country over a certain period of time, usually a year

Expressed by a negative rate of inflation and measured through CPI

Inflation (rate)

A sustained increase in APL in a country over a certain period of time, usually a year

Expressed by a positive rate of inflation and measured through CPI

(rate) is the percentage change in APL between 2 periods

Cost-push inflation

A sustained increase in APL caused by increased production costs

Shown by a leftwards shift of SRAS, resulting in higher APL

Demand-pull inflation

A sustained increase in APL caused by increased aggregate demand

Shown by a rightwards shift of AD

Often occurs during a boom in the business cycle

Disinflation

A decrease in the rate of inflation; prices are still rising but at a slower rate

Stagflation

the simultaneous occurrence of high inflation and weak economic growth with high unemployment

Natural rate of unemployment (NRU)

the unemployment rate that exists at full employment level, consists of seasonal, structural, and frictional unemployment

Frictional unemployment

short-term unemployment that occurs when people are in between jobs or searching for their new job

Seasonal unemployment

unemployment caused by seasonal changes in demand, where jobs are only available during certain times of year

Structural unemployment

Long-term unemployment caused by a mismatch between workers' skill / changes in geographical location and available jobs / labor market rigidities

Cyclical (demand deficient) unemployment

Unemployment caused by a fall in AD, when the economy is at a deflationary gap

Occurs during downturns of the business cycle

Underemployment

referring to the people working with part-time jobs when they would rather work full times or jobs that do not make full use of their education and skills

Unemployment (unemployed)

people of working age who are actively looking for a job but who are unemployed

Unemployment rate

# of unemployed / labor force * 100

Hidden employment

when workers are employed but work fewer hours than they want, or are working in jobs that do not fully use their skills

Deflationary gap

when actual real GDP is below potential output

Inflationary gap

when actual real GDP is greater than potential output

Labor market rigidities

factors preventing the forces of supply and demand from operating in the labor market (i.e. minimum wage)