ECON 202 Week 3 Unemployment and Inflation
ECON 202 Week 3 Unemployment and Inflation Econ 202
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This 0 page Class Notes was uploaded by Ava Jamerson on Saturday November 7, 2015. The Class Notes belongs to Econ 202 at University of Oregon taught by Urbancic M in Summer 2015. Since its upload, it has received 15 views. For similar materials see macroeconomics in Economcs at University of Oregon.
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Date Created: 11/07/15
Week 3 pg 206233 What Are the Major Reasons for Unemployment 0 unemploymentworkers who is not currently employed is looking for a job without success 0 jobs are left voluntarily and involuntarily 0 unemployment rate is used to monitor level of unemployment in economy 0 unemployment rate upercentage of the labor force that is unemployed 0 three typesstructural frictional and cyclical 0 structural and frictional happen when economy is healthy natural Structural Unemployment 0 some jobs become obsolete causes temporal unemployment 0 if economy is going to grow and adapt then unemployment is byproduct 0 creative destruction 0 as some new industries are created older ones are destroyed 0 this leads to structural unemployment caused by changes in structure of economy 0 causes transitional problems but sign of economic health 0 ex book industry Border bankrupt because of kindleipads 0 ex steel equipment replaced people 0 evolving economy 0 200 years ago 90 Americansagriculture century later half in farming O 56 Americans in service jobs 0 since 1979 manufacturing employment has fallen from 20 million to 115 million while service 65 million to 112 million 0 government can establish training and subsidize relocation Economics in the Real World 0 2010 Burke wrote article on how no one wanted to farm 0 unemployment high still people didn39t want it 0 janjune 1160 jobs advertised 36 hired 0 also happened in 20072009 recession very different from reaction during the Great Depression Frictional Unemployment 0 unemployment caused by delays in matching jobs with workers 0 natural occurrence when employers looking for the best workers or workers looking for better jobs 0 information availability 0 applying online makes it faster and lower cost to match employers and workers creating lower frictional cost 0 government policies 0 any factors that lengthen job searching also increase frictional unemployment O unemployment insurance or federal jobless benefits gives unemployed workers a percentage of their old income 0 it helps reduce impact on economy 0 incentives 0 it makes people lazy government policy contributes to frictional unemployment 0 government rules on hiring firing also contribute 0 there are restrictions on who can and should be interviewed paperwork severance pay etc 0 intended to provide job security creates frictional unemployment when firms take longer to hire 0 Germany and France have even more strict labor market regulations 0 as a result they have higher unemployment rates Economics in the Real World Employment Italian style 0 2012 inability to drag Italians out of economic stagnation 0 has many drawbacks 0 pay at least 23 of employees social security expensive to dismiss staffer submit self assessment nation unions must hire a 17th disabled worker gender dynamics etc 0 example of attempt to benefit employees but reduces employer39s incentive to hire result higher frictional unemployment Cyclical Unemployment 0 caused by recessions 0 this type is most dangerous it means jobs are not available 0 the root is unhealthy economy not natural 0 duration of cyclical unemployment is not certain ex Great Recession The Natural Rate of Unemployment 0 zero unemployment is impossible 0 government can39t strive towards it once they tried to lower unemployment by putting money into economy resultin ation 0 natural rate of unemployment utypical rate that occurs when economy is growing normally 0 in US it39s around 5 0 when unemployment ratenatural rate then output level of economy is full employment output y 0 GDPy What Can We Learn from the Employment Data The Unemployment Rate unemployment rateunumber unemployedlabor force X 100 0 to be officially unemployed you have to be a member of labor force 0 labor forcesomeone who is already employed or actively seeking work 0 4 weeks and didn39t seek jobnot included ex retirees stay at home parents jail military under 16 and full time students 0 historical unemployment rates 0 1960 unemployment rate 6 good reference point 0 1970 lowest rate at 38 Economics in the Media 0 the officethree accountants are put out of work because the work became automated 0 technology is structural unemployment Shortcomings of unemployment 0 doesn39t count the people who gave up looking for workdiscouraged workers have looked in the past 12 months but not in the past 4 weeks 0 underemployed workersparttime jobs that want fulltime 0 second shortcomingcan39t determine how long someone has been jobless 2007 23 unemployment was short term 176 longer than 27 weeks 0 2011 43 long term Other Labor Market Indicators 0 other indicators to get complete picture ex participation rate and statistics on gender and race 0 labor force participation 0 size of labor force is important 0 labor force participation rateportion of population in labor force 0 labor force participation rate labor force population X 100 0 gender and race statistics 0 more women working 32 in 198 to 60 today 0 male has fallen 87 to 70 0 why men are liVing longer acquiring more education taking care of families Case Study Unemployment in the Great Recession 20072009 called Great Recession can be compared to the Great Depression of 1930 0 2 graphs don39t think they39re important 0 rate of unemployment and discouraged workers increases during recession week 3 pg 238265 How is In ation Measured 0 Zimbabwehyper in ation 0 US 4 19602012 average in ation but 1970s and 1980s very high 15 0 sine then well controlled even de ationoverall prices fall 0 hard to measure bc prices don39t move together some prices affect consumers more than others 0 bureau of labor statistics measures reports and in ation data they 1determine prices that typical consumers buy and 2identify how much of an average budget is spent on it The Consumer Price Index CPI 0 consumer price indexmeasure of the price level based on consumption patterns of average consumer 0 can be seen as quotbasket of goodsquot ex groceries medical care clothing education housing etc 0 hard to capture average spending but CPI is close to it 0 computing the CPI 0 each month BLS sends out employees in 38 locations to gather price information 0 then they weight it according to of budget ex in 2012 housing was first then transportation and food 0 simple price index compare 1st sum 1st sum x 100 to 2nd sum 1st sum x 100 0 final step create index equal to 100 at a fixed point base year 0 prince index basket pricebasket price in base year x 100 0 economics in the real world 0 CPI tracking is very difficult the workers travel far in search of very specific things 0 measuring in ation rates 0 0 after CPI then measure in ation rates from period 1 to 2 in ation rate ip2 p1p1 x 100 this is growth rate ex CPI rose from 100 to 125 in ation was 25 because 125100 100 X 100 is 25 in ation measured over a year 19602012 typical basket rose sevenfold 0 economics in the real world 0 0 prices don39t move together ex technology prices fall drastically computers 1984 apple sold for 2495 now the newest model less than 2000 0 using the CPI to equate dollar values over time 0 O to compare prices in today39s dollars theres a formula price in today39s dollars price in earlier time x price level todayprice level in earlier time eX 2012 price 1924 house CPI in 2012 was 230 in 1924 it was 17 so price in 20121969 X 230 1726639 0 economics in the real world 0 when movies are released and compared to previous ones needs to be adjusted for in ation O avatarhighest grossing but after adjustment only half of Star Wars 0 economics in the media equating dollar values through time 0 austin powers being frozen makes him underestimate how much money is worth 0 asks for one million dollars actually worth 48 at his time now not as much 0 The Accuracy of CPI 0 other than helping us understand economics employers use the CPI to adjust wages for in ation 0 if CPI understates in ation workers will get hurt O typical basket changes so much makes it hard to measure price 0 most common worryin ation will be overstated 0 three reasons for concern substitution quality change and availability 0 substitution 39 quality gets higher eX movies increase seems like in ation but really also higher quality 39 to prevent this CPI has adjustment method 0 new products and locations I in growing economy new goods are introduced eX ash drives amazoncom 39 BLS used to only update after a long time which caused upward bias I if BLS only checked traditional stores they would overstate prices 39 to solve this they used chained CPI where the goods are updated monthly I gives lower in ation measurement 0 economics in the real world 39 billion prices project at MITT monitors daily price uctuations of 5 billion items by 300 online retailers in 70 countries I only tracks online and doesn39t weight them but still close to CPI 39 able to point out meaningful trends earlier What Problems Does In ation Bring 0 many people think it is harmful but salaries rise as well 0 in ation is not harmless either it imposes many costs 0 shoeleather costs 0 in order to avoid quottaxquot on holding money people hold less many more Visits to bank 0 shoeleather costs resources that are wasted when people change their behaVior to avoid holding money 0 shoes get worn out from making trips to bank 0 money illusion 0 people don39t react rationally to in ation 0 they think things are more expensive when really their salaries also increased 0 as a result they change habits eX not going to see movies as often 0 money illusion when people interpret nominal changes in wages as real changes 0 key distinction is between real wages and nominal wages O nominal wage a person39s wage expressed in current dollars 0 real wage nominal wage adjusted for changes in the price level more informative 0 menu costs 0 physically changing prices is costly 0 menu costs are costs of changing prices 0 some businesses can do it easily others can39t eX restaurants and new menus 0 another costlosing customers because they39re angry 0 uncertainty about future price levels 0 eX to start business you must first invest same with GDP 0 we must invest in today to increase GDP in the future 0 firm sells output or the production a firm creates at the end 0 wage and loan contracts form foundation of production high risk so in ation can lower economic output 0 wealth redistribution 0 you borrow 500000 and will pay back 600000 in 5 years 0 in ation makes you paying it back benefit you but screws the bank 0 crates risk on making loansvery important source for business ventures 0 price confusion 0 market prices signal consumers and firms 0 ex if demand increases firm produces more 0 but dangerous because it may be due to in ation eX housing bubble 0 taX distortions 0 even if all prices raised together still distortions bc taX laws don39t account for in ation 0 ex capital gains taxestaxes on gains realized by selling asset for more than purchase price 0 eX house you sell for more than you bought and the gain is taxed 0 however the CPI makes the price you sold it for the same as when you started 0 as a result you were taxed on a gain that wasn39t as much as it could have been 0 also applies to stocks bonds etc What is the Cause of In ation 0 most in ation rates and money supply growth rates across 160 countries are onetoone 0 however countries like Brazil and Angola with incredibly high rates 0 the reasons governments in ate the money supply I debts cause governments to print more money ex Germany in ation rate 30000 I surprise increase can temporarily stimulate an economy toward more rapid growth rates ex China
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