Chapter 8 Outline

StudyBlue printing of Chapter 8 Outline html, body, div, span, applet, object, iframe, h1, h2, h3, h4, h5, h6, p, blockquote, pre, a, abbr, acronym, address, big, cite, code, del, dfn, em, font, img, ins, kbd, q, s, samp, small, strike, strong, sub, sup, tt, var, b, u, i, center, fieldset, form, label, legend, table, caption, tbody, tfoot, thead, tr, th, td { margin: 0; padding: 0; border: 0; outline: 0; font-size: 100%; background: transparent; } body { line-height: 1; } blockquote, q { quotes: none; } blockquote:before, blockquote:after, q:before, q:after { content: ''; content: none; } /* remember to define focus styles! */ :focus { outline: 0; } /* remember to highlight inserts somehow! */ ins { text-decoration: none; } del { text-decoration: line-through; } /* tables still need 'cellspacing="0"' in the markup */ table { border-collapse: collapse; border-spacing: 0; } /* end RESET */ .header { min-width:800px; } .logo { padding:6px 20px 2px 20px; margin:0; font-size:25px; font-weight:bold; color:#808285; position:relative; border-bottom: 1px solid #c5c5c5; } .logo-blue { color:#70adc4; } .logo-desc { font-weight:normal; font-size:19px; color:#cccccc; margin-top:50px; position:absolute; display: none; } .back-button { position:absolute; top:20px; right:20px; font-size:13px; line-height:25px; color:rgb(0,175,225); font-weight:normal; } .back-button a { color:rgb(0,175,225); } .instructions { padding:0; margin:0; width:100%; position:relative; color:rgb(100,100,100); } .step-holder { border-left:1px solid #ededed; margin-left:20px; } .steps { padding:15px 0; float:left; width:24%; border-right:1px solid #ededed; text-align:center; } .steps-01 { } .steps-02 { } .steps-03 { } .steps-04 { } .label { padding:5px 10px; } .print-button { } .print-button a { background-color:rgb(0,175,225); color:white; line-height: 19px; padding:9px 8px 5px 30px; font-size:14px; text-decoration:none; background-image: url(images/printer.png); background-repeat: no-repeat; background-position: 7px 50%; -moz-border-radius: 5px; -webkit-border-radius: 5px; } .print-button a:hover { background-color:black; } .theNote .content { width: 8.0in !important; margin: 5px auto; padding:20px; background-color:white; } .theNote .header { border-bottom: 1px dashed #C8C8C8; font-size: 17px; padding: 0 0 10px; line-height: 19px; color: #00ADE1; min-width:500px; } .theNote .body { font-size: 14px; line-height: 19px; padding: 10px 0; } .theNote{ padding:6px 0; clear:both; background-color: rgb(200,200,200); } .theNote h3{ color: rgb(100,100,100); } .theNote h1, .theNote h3{ background-color:white; padding:2px 20px; width:8.0in !important; margin: 0 auto; font-size: 15px; } .theNote h1{ padding-top: 10px; font-size: 15px; } .theNote h1:first-child{ font-size: 20px; } .theNote h3 { font-size: 14px; font-weight: normal; } #options { border: 3px double #ccc; padding: 5px 12px; margin: 10px 50px 10px 20px; float: left; } #info { border-top: 1px solid #ccc; padding-top: 5px; font-style: italic; } li { margin: 5px 10px 5px 25px; } ul li { list-style: disc; } ol li { list-style: decimal; } img { border: 0; } table { clear: both; width: 100%; border: 1px solid #c5c5c5; border-width: 1px 0; margin: 0; page-break-after: always; } table#page { page-break-after: auto; } td { text-align: center; font-size: 12px; border-bottom: 1px dashed #c5c5c5; height: 1.75in; width: 50%; padding-left: 15px; } .leftside { border-right: 1px solid #cccccc; padding: 0 15px 0 0; } .bottom td { border-bottom: none; } .clearfix { clear:both; line-height:1px; height:1px; } img { max-width:80%; max-height:150px; margin:20px; } @media print {.header { display: none; } .content .header{ display:inherit; } table { border: 1px dashed #bbb; border-width: 1px 0; } .theNote{ background-color:white; } } Unemployment and Inflation 8.1 Measuring the Unemployment Rate and the Labor Force Participation A. Household Survey each month the department of labor's bureau of labor statistics (bls) conducts the current population survey to collect data needed to compute the monthly unemployment rate. people are are considered employed if they worked during the week before the survey or if they were temporarily away from their jobs. people are considered unemployed if they did not work in the previous week but were available for jobs and had actively looked for work during the previous four weeks. the labor force is the sum of employed and unemployed workers in the economy. the unemployment rate is the percentage of the labor force that is unemployed discouraged workers are people who are available for work but have not looked for a job during the previous four weeks because they believe no jobs are available for them. the labor force participation rate is the percentage of the working-age population in the labor force. B. Problems with Measuring the Unemployment Rate the unemployment rate is not a perfect measure of the current state of joblessness. during a recession, an increase in the number of discouraged workers occurs, but these workers are not counted as unemployed. the bls also counts people as being employed if they hold part-time jobs even though they would prefer to hold full-time jobs. there are other problems that cause the measured unemployment rate to overstate the extent of joblessness. the survey that is used to measures he unemployment rate does not verify the responses of people included in the survey. a person might claim to be actively looking for a job to remain eligible for government programs for the unemployed. other people might be employed but engaged in illegal activity or might want to conceal a legitimate job to avoid paying taxes. C. Trends in Labor Force Participation the labor force participation rate determines the amount of labor that will be available to the economy from a given population. the higher the labor force participation rate, the more labor will be available and the higher a country's level of gdp. the labor force participation rate of adult men has declined gradually since 1948, but the labor force participation rate of adult women has increased sharply. the overall labor force participation rate rose from 59% in 1948 to 66 percent in 2008 D. Unemployment Rates for Demographic Groups different groups in the population can have very different unemployment rates. for example, the unemployment rate for black adults is higher than the unemployment rate for white adults, and teenagers have higher unemployment rates than adults. E. How Long Are People Typically Unemployed? in the modern u.s. economy, the typical unemployed person stays unemployed for a relatively brief period of time, although that time lengthens significantly during a recession F. The Establishment Surey: Another Measure of Employment the bls uses the establishment survey, sometimes called the payroll survey, to measure total employment in the economy. this monthly survey samples about 300,000 business establishments and provides information on the total number of persons who are employed and on a company payroll. despite some drawbacks, the establishment survey has the advantage of being determined by actual payrolls. in recent years, some economists have come to rely more on establishment survey data than on household survey data in analyzing current labor market conditions G. Job Creation and Job Destruction over Time the u.s. economy creates and destroys millions of jobs every year. the creation and destruction of jobs results from changes in consumer tastes, technological progress, and the successes and failures of entrepreneurs I.2 Types of Unemployment A. Frictional Unemployment and Job Search most workers spend some time engaging in a job search and most firms spend time searching for a new person to fill a job opening. frictional unemployment is short term unemployment that arises from the process of matching workers with jobs. there will always be some workers who are frictionally unemployed because they are between jobs and in the process of searching for new ones. some unemployment is due to seasonal factors, such as weather or fluctuations in demand during different times of the year. seasonal unemployment refers to unemployment due to factors such as weather, variations in tourism, and other calendar-related events B. Structural unemployment structural unemployment is unemployment arising from a persistent mismatch between the skills and attributes of workers and the requirements of jobs. this type of unemployment can last for longer periods than frictional unemployment because workers need time to learn new skills. C. Cyclical Unemployment when the economy moves into recession, many firms find their sales falling and cut back on production. as production falls, firms lay off workers. cyclical unemployment is unemployment caused by a business cycle recession. D. Full Employment the natural rate of unemployment is the normal rate of unemployment, consisting of frictional unemployment plus structural unemployment. the natural rate of unemployment is also called the full employment rate of unemployment 8.3 Explaining Unemployment A. Government Policies and the Unemployment Rate governments can help reduce the level of frictional unemployment by pursuing policies that help speed up the process of matching unemployed workers with unfilled jobs. governments can help reduce structural unemployment by implementing policies that aid worker retraining. in the u.s. and most industrial countries, the unemployed are eligible for unemployment insurance payments. unemployment insurance helps the unemployed maintain their income and spending, which lessens the personal hardship of being unemployed and reduces the severity of recessions. int he u.s., unemployed workers are typically eligible to receive unemployment insurance payments equal to about half their previous wage for six months. in many other countries workers are eligible to receive unemployment payments for a year or more, and payments may equal 80% of their previous wage. in 1938 the federal government enacted a minimum wage law. if the minimum wage is set above the market wage determined by the demand and supply of labor, the quantity supplied of labor will be greater than the quantity of labor demanded. as a result, the unemployment rate will be higher than it would be without the minimum wage. B. Labor Unions labor unions are organizations of workers that bargain with employers for higher wages and better working conditions for their members. in unionized industries the wage is usually above what otherwise would be the market wage, but most economists believe that this does not result in an increase int eh overall unemployment rate because only about 9% of workers outside the government sector are unionized. C. Efficiency Wages many studies have shown that workers are motivated to work harder by higher wages. an efficiency wage is a higher than market wage that a firm pays to increase worker productivity. efficiency wages are another reason economics experience some unemployment even when cyclical unemployment is zero. 8.4 Measuring Inflation the price level is a measure of the average prices of goods and services in the economy. the inflation rate is the percentage increase int eh price level form one year to the next. the gdp deflator is the broadest measure of the price level from one year to the next. the gdp deflator is the broadest measure of the price level but it we want to know the impact of inflation on the typical household the deflator may be misleading because it includes prices of products that are not purchased by the typical household. changes in the consumer price index come closest to measuring changes in the cost of living as experienced by the typical household A. The Consumer Price Index to obtain prices of a representative group of goods and services, the bls surveys 30,000 households on their spending habits. the survey is used to construct a market basket of 211 types of goods and services used by the typical urban family of four. the consumer price index is an average of the prices of the goods and services purchased by the typical urban family of four. one year is chosen as the base year, and the value of the cpi is set equal to 100 for that year. in any other year the cpi equals the ratio of the dollar amount necessary to buy the market basket in that year divided by the dollar amount necessary to buy the market basket in the base year, multiplied by 100 B. Is the CPI Accurate? the cpi is the most widely used measure of inflation. it is important that the cpi be as accurate as possible but there are four biases that cause the cpi to overstate the true inflation rate: substitution bias, increase in quality bias, new product bias and outlet bias C, The Producer Price Index in addition to the gdp deflator and the cpi, the government also computes the producer price index, which is an average of the prices received by producers of goods and services at all stages of the production process. changes in the ppi can give an early warning of future movements in the cpi. 8.5 Using Price Indexes to Adjust for the Effects of Inflation price indexes give us a way of adjusting for the effects of inflation so that we can compare dollar values from different years. to correct for the effects of inflation, we can divide a nominal variable by a price index and multiply by 100 to obtain a real variable. economic variables that are calculated in current-year prices are referred to as nominal variables. 8.6 Real versus Nominal Interest Rates the difference between nominal and real values is important when money is being borrowed and lent. because it is corrected for the effects of inflation, the real interest rate provides a better measure of the cost of borrowing and the true return to lending than does the nominal interest rate minus the inflation rate. deflation is a decline in the price level. 8.7 Does Inflation Impose Costs on the Economy? A. Inflation Affects the Distribution of Income inflation does not reduce the afforadability of goods and services to the average consumer, but it still imposes costs ont he economy. inflation affects the distribution of income. some people will find their incomes rising faster than the rate of inflation, and so their purchasing