sg06 - 6 Unemployment and Inflation Chapter Summary Does...

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6 Unemployment and Inflation Chapter Summary Does fighting the war in Iraq affect the unemployment rate? This is just one of the questions this chapter will help you answer. This chapter deals with unemployment and inflation, both of which affect the quality of our lives. We’ll study ways to measure unemployment and inflation and how each affects society. Here are the main points of the chapter: The unemployed are individuals who do not have jobs but who are actively seeking employment. The labor force comprises both the employed and the unemployed. The unemployment rate is the percentage of the labor force that is unemployed. Economists distinguish among different types of unemployment. Seasonal patterns of economic activity lead to seasonal unemployment. There are three other types of unemployment. Frictional unemployment occurs through the normal dynamics of the economy as workers change jobs and industries expand and contract. Structural unemployment is due to a mismatch of workers’ skills with job opportunities. Cyclical unemployment occurs with the fluctuations in economic activity. Unemployment rates vary across demographic groups. Alternative measures of unemployment take into account individuals who would like to work full time, but who are no longer in the labor force or are holding part-time jobs. Economists measure changes in the cost of living through the Consumer Price Index (CPI), which is based on the cost of purchasing a standard basket of goods and services by consumers. We measure inflation as the percentage change in the price level. Economists believe that most price indexes, including the CPI and the chain-weighted index for GDP, overstate true inflation because they fail to capture quality improvements in goods and services. Unemployment imposes both financial and psychological costs on workers. Both anticipated and unanticipated inflation imposes costs on society. Applying the Concepts After reading this chapter, you should be able to answer these four key questions: 1. What do the recent data show about trends in the percentage of women who are working? 2. Who are the new discouraged workers in Japan? 3. What are the costs of either too high or too low levels of unemployment insurance? 4. Are Social Security payments properly adjusted for changes in the cost of living?
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78 Chapter 6 6.1 Examining Unemployment Understanding the following key terms related to unemployment measurement is critical to computing unemployment statistics: Employed: People who have jobs Unemployed: People who don’t have jobs, but are seeking work Labor Force: The employed plus the unemployed Within these definitions, we can compute the following unemployment statistics: ; Key Equations Labor Force = Employed + Unemployed Unemployed Unemployment rate = Labor Force Labor Force Labor Force Participation Rate = Population over 16 years old
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This note was uploaded on 10/25/2009 for the course ECON 81509 taught by Professor during the Spring '09 term at Mesa CC.

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sg06 - 6 Unemployment and Inflation Chapter Summary Does...

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