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