COM 5030: UNIT 1 PART 3

• Aggregate supply represents the total amount of goods and services that producers are willing and able to supply at different price levels.
• Unemployment Rate is the ratio of the number of unemployed people to the number of people in the labor force.
• Unemployed refers to people looking for work but did not get one.
• Labor Force is the sum of the Employed and the Unemployed.
• The Phillips curve is downward sloping indicating that higher unemployment rate leads to a lower inflation rate, such that if unemployment rate is below 6%, the inflation rate typically increases suggesting that the economy is overheating and operating above its potential and vice-versa.
• Labor Force Participation Rate is the ratio of the labor force to the total population.
• Only those looking for work are counted as unemployed.
• Those not working and not looking for work are not unemployed and therefore not in the labor force.
• Unemployment can be involuntary or voluntary as to job acceptance.
• The 4 types of unemployment are: Frictional, Cyclical, Seasonal and Structural as to cause.
• Discouraged workers are people without jobs who have given up looking for work.
• Involuntary unemployment occurs when the job applicant is not accepted due to insufficient skills for the job even if the job seeker is willing to accept any position.
• Voluntary unemployment occurs when the job applicant rejects the job position due to salary reasons.
• Frictional unemployment is due to job mobility or job transfer or in search of a new job.
• Seasonal unemployment is due to changes in demand for labor at certain times or periods or months within the year.
• Cyclical unemployment is due to changes in demand for labor associated with the business cycles of recession or depression.
• Structural unemployment is due to changes in demand for or supply of labor associated with changes in consumers’ tastes; technological changes; or changes in systems, processes or structures.
• Children aged below 15 years, senior citizens aged 65 years & above, institutionalized, and adult or household population not looking for work are not included in the labor force.
• People who are not financially independent are called dependency burden or dependents.
• Natural Rate of Unemployment or Equilibrium employment is 4% when people are unable or unwilling to fill-up job vacancies due to information problems in the labor market.
• Full Employment is when all human resources who are looking for work find work & the maximum output for the economy is achieved.
• Underemployment is when people are working less than 8 hours/day or less than 40 hours/week and want to work for more hours.
• The relationship between job vacancies and the unemployment rate is called the Beveridge Curve.
• Arthur Okun was the first to quantify the relationship between the unemployment rate and the GDP gap.
• The GDP gap is the difference between the actual and potential GDP.
• Okun’s law is a relation between the change in unemployment rate (X-axis) and GDP growth rate (Y-axis).
• Economists care about unemployment because of its direct effect on the welfare of the unemployed.
• Tools used to measure price movements or changes in price level include Inflation Rate, which is measured by year-on-year comparisons, Price Indices, which are measured in reference to the base year.
• Shoeleather costs are the resources (the time & convenience) wasted when inflation encourages people to reduce their money holdings.
• During Inflation, Gainers include Speculators, Entrepreneurs or Flexible-Income Earners, Debtors, Losers include Retirees & Pensioners, Wage or Salaried Employees or Fixed-Income Earners, Savers, Consumers, Creditors.
• Stagflation is a situation where there is a direct or positive relationship between the unemployment rate and price level but usually occurs on the increasing side.
• The GDP Deflator is the ratio of nominal GDP to real GDP, it gives the average price of output – the final goods produced in the economy.
• Unemployment provides a signal that the economy may not be using some of its resources efficiently.
• Many workers who want to work do not find jobs; the economy is not utilizing its human resources efficiently.
• A.W. Phillips, a New Zealander economist, explored in 1958 the relationship between the rate of inflation (Y-axis) against the unemployment rate (X-axis).
• The Consumer Price Index (CPI) is the average price of consumption – the goods consumers buy and consume.
• Inflation is a sustained rise or spiral increase in the general price level.
• GDP Deflator and CPI, these two move in the same direction but they are not necessarily the same due to 2 reasons: Some goods in the GDP are not sold to consumers but to firms, to government or foreigners.
• Deflation is a decrease in the general price level.
• Menu costs are the costs of changing prices because of the need to print a new menu or price lists or catalogs.