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This 3 page Class Notes was uploaded by Shelby Sorrell on Friday October 9, 2015. The Class Notes belongs to ECO2013 at a university taught by Deborah Paige in Fall 2015. Since its upload, it has received 8 views.
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Date Created: 10/09/15
Module 4 Key Points 0 The unemployment rate does NOT come from who collects unemployment benefits but from a large survey 0 We do NOT want the unemployment rate at 0 we DO want cyclical unemployment at O o The economy can create a negative number of jobs we cut more than we created 0 The unemployment rate underestimates the true job problem when the economy is weak 0 In a weak economy many unemployed workers quotdisappearquot as they stop looking for a job 0 In a weak economy many workers are not fully employed 0 The CPI is often used as a quotproxyquot for the cost of living there can be issues here 0 The PPI is often used to predict future inflation or to analyze where the economy is relative to full employment Both the CPI and PPI use the market basket approach Both the CPI and PPI also come in a quotcore ratequot version that omits food and energy prices The CPI is most used in the overall version while the PPI is most used in the core version 0 Inflation has winners and losers think of inflation as a quotzero sum gamequot 0 People with low or fixed incomes tend to do poorly during periods of high inflation 0 Savers and lenders tend to do badly when unexpected inflation occurs 0 Changing prices costs money and can add a bit to inflation as more companies do it more often 0 Erratic and high inflation can cause speculation bubbles in quotinflation hedgesquot High and erratic inflation can create an environment of uncertainly that paralyzes decision making Module 4 Vocabulary and Formulas BUSINESS CYCLE THEORIES Endogenous Theories lnnova on Psychological factors Inventory Cycle Monetary pressure Underconsumption Exogenous Theories Foreign Demand War Resource availability LABORFORCE Available adult population out of the labor force Unemployed employed OUTOFTHELABORFORCE UNEMPLOYMENT UNEMPLOYMENTRATE unemployed in labor force CHANGE IN NONFARM PAYROLL JOBS NATURALRATECNUNEMPLOYMENT Structural frictional unemployment STRUCTURALUNEMPLOYMENT FRICTIONAL UNEMPLOYMENT CYCLICAL UNEMPLOYMENT Actual unemployment rate natural rate of unemployment DISCOURAGED WORKER EFFECT UNDEREMPLOYMENT GOVERNMENT ENCOURAGED UNEMPLOYMENT UNDERGROUND ECONOMY PRICE LEVEL INFLATION Change in the price level old price level HYPERINFLATION DEMANDPULL OR DEMAND SIDE INFLATION COSTPUSH OR SUPPLYSIDE INFLATION SELFFULFILLING INFLATION works through the other two CPI Consumer Price Index Current consumer market basket cost Base year consumer market basket cost BIAS IN CPI Substitution bias New goods bias Outlet bias Housing bias PPI Producer Price Index Current producer market basket cost Base year producer market basket cost CORE RATE REAL INCOME Nominal income CPI x 100 MENU COST INFLATION HEDGE
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