Macroeconomics Chapter 15: Unemployment and Inflation Flashcard Example #89344

Labor Force
the sum of employment and unemployment
Labor Force Participation Rate
defined as the share of the working-age population that is in the labor force
Labor Force Participation Rate Equation
labor force participation rate = (labor force / population age 16 and older) * 100
Unemployment Rate
the percentage of the total number of people in the labor force who are unemployed
Unemployment Rate Equation
unemployment rate = (number of unemployed workers / labor force) * 100
Frictional Unemployment
unemployment due to the time workers spend in job search
Structural Unemployment
unemployment that results when there are more people seeking jobs in a particular labor market than there are jobs available at the current wage rate
(occurs when the wage rate is, for some reason, persistently above the equilibrium wage rate)
Reasons for Structural Unemployment
– minimum wages
– labor unions
– efficiency wages
– side effects of government policies
– mismatches between employees and employers
Natural Rate of Unemployment
the normal unemployment rate around which the actual unemployment rate fluctuates
Cyclical Unemployment
the deviation of the actual rate of unemployment from the natural rate
(the difference between the actual and natural rates of unemployment)
Natural Unemployment Equation
natural unemployment = frictional unemployment + structural unemployment
Actuall Unemployment Equation
actual unemployment = natural unemployment + cyclical unemployment
Changes in the Natural Rate of Unemployment
– changes in labor force characteristics
– changes in labor market institutions
– changes in government policies
Inflation Rate Equation
inflation rate = ((price index year 2 – price index year 1) / price index year 1) * 100
Shoe-Leather Costs
increased costs of transactions caused by inflation
Menu Cost
the actual cost of changing the listed price
Unit-of-Account Costs
the way inflation makes money a less reliable unit of measurement
Interest Rate
the return a lender receives for allowing borrowers the use of heir savings for one year, calculated as a percentage of the amount borrowed
Nominal Interest Rate
the interest rate in dollar terms
Real Interest Rate
the nominal interest rate minus the rate of inflation

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