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UNEMPLOYMENT AND INFLATION

Labor unions organisations that bargain higher wages

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Labor Unions = organisations that bargain higher wages and better work conditions. Efficiency wage= higher than market wage a firm pays to increase worker productivity MW/labor Unions & efficiency wage can cause economies to experience U even when Cyclical U = 0 Measuring Inflation Price level = measure of average prices of G/S in economy Inflation rate= percentage increase in price level from one year to the next GDP deflator = broadest measure of price level Measure inflation with CPI: CPI = average of the prices of the goods and services purchased by typical urban family of four. Value of CPI is set equal to 100 for base year CPI = (expenditures in the current year ÷ expenditures in the base year) x 100 Inflation rate : Percentage chage in CPI from a year ti the year after CPI Accurate ? 4 biases that cause change in CPI to overstate true inflation rate -substitution bias : BLS assume that consumers purchase same monthly amount of each product in market basket -increase in quality = some prices increase are due to improved quality BLS makes adjustment so that only pure inflation part of price is included in CPI -new product bias = new products are often excluded in calculation of CPI -outlet bias = CPI doesnt reflect prices paid y some consumers at discount stores.
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