The sum of employed and unemployed workers in the economy. (workforce; employed and unemployed). Conducted by the US Department of Labor.
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Unemployment Rate
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% of labor force searching for jobs and unable to find work.
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Employed
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Spent a few hours (>1) of the previous week working at a paid job - paid employees, self-employed, unpaid workers in a family business.
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Unemployed
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People not working who have looked for work during the previous 4 weeks - actively seeking and able to work and willing to accept a job, recently laid off or waiting for a start date of a job.
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Not in the Labor Force
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Everyone else - people who don't have paid jobs and are not looking for paid jobs, includes volunteers with no other paid jobs.
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The Household Survey
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Conducted by the Bureau of Labor Statistics (BLS), part of the US Department of Labor; Every month; Survey approx. 60,000 randomly selected households; 16 and older; includes E, UE, and NLF.
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Which of the following individuals is classified as "not in the labor force"?
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Linda is a homemaker. Last week, she was occupied with her normal household chores. She neither held a job nor looked for a job.
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Discouraged Workers
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People who are available for work, but have not looked for a job during the previous 4 weeks, because they believe that no jobs are available for them or firms are not hiring right now. Most have searched in the past and given up.
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Which of the following is the best categorization of a discouraged worker?
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Not looking for work and not in the labor force.
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Who is an example of a discouraged worker?
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Mary-Helen has been out of work for a full year. She would like to work and would take a job if it was offered, but has quit searching for jobs since she's not found any local companies are hiring. Currently, she is not actively searching for work.
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Dividing the labor force by the working age population yields:
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The labor force participation rate.
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Satchel loses his job and immediately begins looking for another. Other things the same, the unemployment rate
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increases and the labor-force participation rate is unaffected.
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In 2011, which of the groups below had the lowest unemployment rate?
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Asians
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The Establishment Survey
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Samples ~300,000 establishments, or places of employment, about their employees.
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Which of the following is true about the establishment survey?
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It provides information about the number of persons employed, or in a company payroll.
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When the BLS announces each month the increases or decreases in the number of persons employed and unemployed, these figures refer to:
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Jobs created minus jobs eliminated.
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The Natural Rate of Unemployment
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The normal rate of unemployment, consisting of frictional unemployment and structural unemployment.
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The US Natural Rate of Unemployment is somewhere between ___.
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5 and 6 percent
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Natural Rate
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The UE rate that the economy typically/normally experiences. (Also known as the full employment rate of UE) Is caused by: Structural UE and Frictional UE
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Cyclical UE
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Short-run fluctuations (month-to-month or quarter-to-quarter) in the UE rate associated with business cycle fluctuations - the deviation of UE from its natural rate (decrease in UE, short run increase in GDP in booms/expansions) (increase in UE, short run decrease in GDP in recessions/contractions)
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The "normal" underlying level of unemployment in the economy is:
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The sum of structural unemployment and frictional unemployment.
The full-employment rate of unemployment.
The natural rate of unemployment.
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Frictional Unemployment
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Job search UE; the time it takes to match workers with an appropriate job/short -term UE that arises from the process of matching workers with jobs (ex. Time from graduating to job that matches your skills and preferences) (Seasonal UE: UE that is caused by factors such as weather variations, tourism)
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Structural Unemployment
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Unemployment that arises from a persistent mismatch between the skills or attributes of workers and the requirements of jobs.
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Structural Unemployment is caused by:
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Sectoral shifts in the economy: the economy is shifting shifts: Technology (typewriter vs. computers), changes in demand, international trade
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Consumers decide to buy more computers and fewer typewriters. As a result, computer companies expand production while typewriter companies lay-off workers. This is an example of
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Structural unemployment created by sectoral shifts.
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When the skills of the unemployed don't match the skills required for a job, we have:
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Frictional UE
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Minimum Wage Laws
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Designed to help low-income workers; but raising the wage that firms have to pay will likely result in them hiring fewer workers.
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The group most likely to receive minimum wage is
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teenagers
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The unemployment rate in the United States is _______ and the requirements for receiving unemployment _______ than in Western Europe.
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Lower; more stringent
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Labor Unions
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Organizations of workers that bargain with employers for higher wages and better working conditions.
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Strike
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formal withdrawal of labor
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Collective Bargaining
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Bargaining between firms and union members for better wages and working conditions.
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Efficiency Wages
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Above equilibrium wages paid by firms.
Causes unemployment.
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____ created efficiency wages; paid a generous $5 - a day wage (equilibrium wage was $2.50).
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Henry Ford
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Efficiency wages, minimum-wage laws, and unions all
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keep wages above the equilibrium level, causing a surplus of labor.
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Which of the following statements is true?
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Minimum wage laws cause an increase in unemployment.
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Consumer Price Index (CPI)
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What consumers pay, cost of living of the typical consumer.
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Producer Price Index (PPI)
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What produces pay to buy the goods and services they need for production/cost of production.
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CPI =
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(COB current year / COB base year) x100
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Inflation Rate as the % change in CPI =
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((new-old) / old) x100
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Substitution Bias
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Consumers may change their purchasing habits away from goods that have increased in price.
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Increase in Quality Bias
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Products like cars and computers have become more durable and better quality over time. It is hard to isolate the pure-inflation part of price increases.
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New Product Bias
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The basket of goods used to change only every 10 years. There is a delay to including new goods like cell phones.
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Outlet Bias
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Increases in purchases from discount stores like Sam's Club and Costco or the internet are not incorporated into the CPI; it still uses full-retail price.
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Economists believe the CPI ____ true inflation by 0.5 to 1 percentage point.
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Overstates
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If the consumer price index was 100 in 1992 and 200 in 2011, then average prices in 2011 were:
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Twice as high in 2011 as in 1992.
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If your salary was $29,500 in 1992, when the CPI was 100, and you earned $65,000 in 2011, when the CPI was 226, then:
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Your real wage decreased.
(1992 salary into 2011 dollars = 29,500 x (226 / 100) = $66,670)
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Deflation
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Decrease in the price level.
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The stated interest rate on a loan is:
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The nominal interest rate.
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Which interest rate provides a better measure of the true cost of borrowing and the true return to lending?
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The real interest rate.
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Assume the average annual CPI values for 2012 and 2013 were 207.3 and 215.3, respectively. What was the inflation rate between these two years?
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3.86%
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The problem of quality bias in the consumer price index refers to the idea that price increases in the CPI reflect pure inflation, but ________ quality increases. This causes the CPI to ________ the cost of the market basket.
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not; overstate
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Which market basket below specifically targets intermediate goods?
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The basket used by the Producer Price Index.
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An important difference between the GDP deflator and the consumer price index is that
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the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers.
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Assume that Irish whiskey is in the basket of the typical American consumer. An increase in the price of Irish whiskey imported into the United States will be reflected in
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the U.S. CPI, but not the U.S. GDP deflator.
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Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent. Over the course of a year, the inflation rate is 1.7 percent. At the end of the year, Corey has
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$50 more in his account, and his purchasing power has increased by $33.
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Samantha goes to the grocery store to make her monthly purchase of ginger ale. As she enters the soft drink section, she notices that the price of ginger ale has increased 15 percent, so she decides to buy some peppermint tea instead. To which problem in the construction of the CPI is this situation most relevant?
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Substitution Bias
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Jake loaned Elwood $5,000 for one year at a nominal interest rate of 10 percent. After Elwood repaid the loan in full, Jake complained that he could buy 4 percent fewer goods with the money Elwood gave him than he could before he loaned Elwood the $5,000. From this, we can conclude that the rate of inflation during the year was
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14%
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