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Macroeconomic Measurements, Part I:
Prices & UnemploymentLct 5
Based on Ch. 6, Macroeconomics, Roger A. Arnold
Measuring The Price Level
Price : Refers to the price of a single good or service
Price Level : A weighted average of the prices of ALL goods & services
The most common measure of price level…
Consumer Price Index (CPI) : The weighted average of prices of a specific set of goods and services purchased by a typical household
Base Year : The year chosen as a point of reference or basis of comparison
Example…(In class) & Application
Inflation and the CPI
Inflation : An increase in the price level
Inflation Rate : Positive percentage change in the price level
Real Income : Nominal income adjusted for price changes
Case 1…in class
Case 2…in class
Case 3…Home work p. 131-132 (textbook)
GDP Deflator
GDP deflator : Based on ALL goods and services in the economy
Converting dollars from one year to another…
Salary in today’s dollars =
Measuring Unemployment
Exhibit 4 (p. 135, textbook) : Population (Children, army, prisoners)
Labour Force (People willing and able to work) AND Not in labour force
Labour Force Unemployed + Employed
Unemployment Rate …The % of labour force that is unemployed
Employment Rate : The percentage of the population (eligible for work) that is employed
Labour Force Participation Rate (LFPR)
Reasons for Unemployment
Job loser (Lost the job… )
Job leaver (Quit the job…)
Reentrant (Previously employed, took a break from work, then returns)
New entrant (e.g. University graduates)
Types of Unemployment
Frictional Unemployment () : Unemployment that is due to natural frictions in the economy and that is caused by changing market conditions and represented by qualified individuals with transferable skills who change jobs
Structural Unemployment () : Unemployment due to structural changes in the economy that eliminate some jobs and create others for which the unemployed are unqualified
Natural Unemployment,
Full Employment and Cyclical UnemploymentFull Employment : Occurs when the unemployment rate is equal to the natural unemployment rate
Cyclical Unemployment Rate () : The difference between the unemployment rate and the natural employment rate