1. Chapter 6 Unemployment, Inflation, Economic Growth and Fluctuations

2. Macroeconomic Model Aggregate Demand – total demand Aggregate Supply – total supply Price Level – CPI Quantity – Real GDP

3. Unemployment Measurement Civilian Noninstitutionalized Adult Population (CNAP) – 16 years and older Labor Force = Employed + Unemployed Unemployed – looking for work but can’t find it Labor force participation rate = labor force/CNAP Women and baby boomers Unemployment rate = unemployed/labor force

4. Types Frictional – New entrants (9%), Reentrants (34%), Between jobs (12%) Structural (45%) – Mismatch of skills and jobs and wrong location Seasonal – Only work during certain seasons Cyclical – fluctuates with the business cycle Full employment – no cyclical unemployment

5. Reasons for unemployment Job leaver Reentrant New entrant Job Loser

6. Costs Loss of incomes Loss of self esteem Loss of goods Loss of taxes Social Costs Brenner study (1984) Suicide Heart disease Mental Illness Health problems Child abuse Crime Drug use Waste resources Increase in transfer payments

7. Burden Blue collar Nonwhite Young Low educated

8. Minimum Wage Causes unemployment in teens

9. Inflation Inflation – rising average price level (CPI) Definitions Disinflation – lowering inflation Deflation - falling average price level Hyperinflation – extremely high rate of inflation Types Anticipated Inflation – what we believe will occur Expected price level Unanticipated Inflation – surprise inflation

10. Measurement CPI – Weighted average market basket

11. Results Costs Real income declines: Money loses value Menu costs - Shoe leather costs Distortion costs – uncertainty and confusion Time costs – delays in production and distribution Types Demand pull: Increased AD Cost push: Decreased AS

12. Real Interest Rate Real Interest Rate = Nominal Interest Rate – Inflation Rate

13. Economic Growth Increase in the Real GDP over a long period of time Shifting the PPC outward Increase quantity of resources Increase quality of resources

14. Economic Fluctuations (Business Cycles) – deviations from the long term trend Phases Peak – highest economic activity Contraction – decreasing Real GDP for six months Unemployment Sub-Phases Slowdown (Downturn) Recession They have to end as cars and appliances have to be replaced, clothes wear out Trough – lowest economic activity Expansion – increasing Real GDP for six months Over employment Sub-Phases Recovery Prosperity