Chapter 24: Unemployment and Inflation – page 1
Defeated Incumbents – Unemployment and inflation are known as the “twin evils of macroeconomics”. How
is it that the goals of reducing each are often at odds with each other?
____________________________________
____________________________________________________________________________________________
____________________________________________________________________________________________
The Unemployment Rate – Between 1948 and 2008, the unemployment rate has fluctuated between ____ and
____ %. Unemployment always rises during ___________________, and generally falls during
________________
Defining and Measuring Unemployment – Define the following terms as they relate to collecting employment
data
Employment ________________________________________________________________________________
Unemployment ______________________________________________________________________________
What types of people that are not working are not considered unemployed?
_______________________________
____________________________________________________________________________________________
The Labor Force - ____________________________________________________________________________
Labor Force Participation Rate _________________________________________________________________
The Unemployment Rate ______________________________________________________________________
How is the unemployment rate estimated in the U.S.?
________________________________________________
Over recent years, the labor force participation rate has dropped. It was ~67% in 2002, ~66% in 2008, and is
currently just above 63%. Why do you think it is dropping?
____________________________________________
What effect do you think this would have on the unemployment rate?
____________________________________
p. 638, problem 6.
Employmen
t 2007
a.
Employmen
t 2008
b.
Change in
Employmen
Change in
Labor Force
c.
Unemployment
2007
Unemployment
2008
t
Northeas
t
South
Midwest
West
d.
The Significance of the Unemployment Rate – What insight does the unemployment broadly offer?
____________________________________________________________________________________________
What does the number no tell us?
_________________________________________________________________
How the Unemployment Rate Can Overstate the True Level of Unemployment – How can it? _______________
____________________________________________________________________________________________
Make a note that you will not often hear this complaint. You will hear the complaint about…
How the Unemployment Rate Can Understate the True Level of Unemployment - The biggest problem here is that
people who are not _____________________________ are not counted as unemployed. Define the following:
Discouraged workers - _________________________________________________________________________
Marginally attached workers ___________________________________________________________________
The underemployed - __________________________________________________________________________
Familiarize yourself with Figure 24-2 and assess the validity of the following statement: To the extent that
unemployment is understated, it is generally understated by the same percentage, regardless of how the
economy is doing.
______________________________________________________________________________________
____________________________________________________________________________________________
What groups in society tend to have an easier time finding work?
________________________________________
What groups have a harder time?
_________________________________________________________________
Growth and Unemployment – As a general rule, during a recession, unemployment is __________________.
During an expansion, unemployment is ______________. There can, however, be a period of increasing
unemployment while the economy is expanding. Why would this be the case?
_____________________________
____________________________________________________________________________________________
What conclusions can be drawn from the scatter-plot in Figure 24-5?
_____________________________________
____________________________________________________________________________________________
According to Figure 24-6 and your own background knowledge, what types of states have low unemployment
rates? ______________________________________________________________________ high
unemployment rates? ______________________________________________________________________
Why do these differences tend not to persist?
___________________________________________________________________
CYU 24 – 1.
2. a.
d.
b.
e.
c.
3. a.
b.
c.
Problem 2. (Similar to CYU 3) –
Chapter 24: Unemployment and Inflation – page 2
The Natural Rate of Unemployment – Can the unemployment rate in the U.S. ever reach zero? _________
Why not?
____________________________________________________________________________________
Job Creation and Job Destruction – List examples of recent changes in the structure of our economy that
affected the labor market.
______________________________________________________________________________
Frictional Unemployment – List reasons workers leave a job voluntarily.
__________________________________
Define frictional unemployment.
_________________________________________________________________
Why is there always frictional unemployment?
_______________________________________________________
When times are good, the ratio of frictional to total unemployed is _________. In bad times, the ratio is
________.
CYU 24-2 1. a.
b.
Structural Unemployment – Define and describe examples of structural unemployment.
_____________________
____________________________________________________________________________________________
How does the minimum wage lead to structural unemployment?
________________________________________
____________________________________________________________________________________________
Describe why this conclusion is controversial in the U.S.
______________________________________________
____________________________________________________________________________________________
Describe how each of the following lead to (a bit of) structural unemployment:
Labor Unions - _______________________________________________________________________________
Efficiency Wages _____________________________________________________________________________
Side Effects of Public Policy ____________________________________________________________________
CYU 24-2 2.
The Natural Rate of Unemployment – Define the following: the natural rate of unemployment ______________
____________________________________________________________________________________________
Cyclical unemployment ________________________________________________________________________
Despite a desire to do so, public policy cannot keep the rate of unemployment ________________ the natural
rate.
Natural unemployment =
Actual unemployment =
Changes in the Natural Rate of Unemployment – Can the natural rate of unemployment change? ________
How?
Changes in Labor Force Characteristics - __________________________________________________________
____________________________________________________________________________________________
Changes in Labor Market Institutions - ___________________________________________________________
Changes in Government Policies ________________________________________________________________
____________________________________________________________________________________________
CYU 24-2, 3.
Problem 3. a.
b.
c.
5. a.
c.
b.
d.
7. a.
8. a.
b.
b.
c.
c.
d.
Inflation and Deflation – How is it that the level of prices doesn’t matter? _____________________________
____________________________________________________________________________________________
____________________________________________________________________________________________
but the rate of change does?
_____________________________________________________________________
Describe the following costs imposed by inflation: shoe-leather costs ____________________________________
____________________________________________________________________________________________
Menu costs - _________________________________________________________________________________
Unit-of-Account costs _________________________________________________________________________
____________________________________________________________________________________________
Define nominal interest rate ____________________________________________________________________
Define real interest rate ________________________________________________________________________
Who wins when there is inflation? Why?
___________________________________________________________
____________________________________________________________________________________________
Who loses? Why? _____________________________________________________________________________
____________________________________________________________________________________________
Why is disinflation so painful for an economy?
_______________________________________________________
____________________________________________________________________________________________
Problem 11.
13. a.
b.