Macroeconomics Chapters 15-17

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unemployed
-available for work
-has looked for work in past four weeks
-waiting to be recalled to a job
labor force
-IN:
–employed workers
–unemployed workers
–(in other words, those who have a job or who are looking)
-OUT:
–students
–homemakers (stay-at-home)
–retirees
–non-workers
unemployment rate (U3)
-[(# unemployed) / (#employed + #unemployed)] x 100
-percentage of labor force that’s unemployed
labor-force participation rate (LFPR)
-[(labor force) / (adult population)] x 100
-percentage of total adult population that’s in the labor force
-fraction of population that’s chosen to participate in labor market
U6
[(unemployed + marginally attached + part-time for economic reasons) / (labor force + marginally attached)] x 100
marginally-attached workers
currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for some time in the recent past (in the past 12 months)
discouraged workers
marginally-attached workers who have given a job-market related reason for not currently looking for a job
persons employed part-time for economic reasons
want and are available for full-time work but have had to settle for a part-time schedule
frictional unemployment
-takes time for workers to search for jobs best for them
-short spells of unemployment
-caused by job search, technological advancement, movement into other industries
structural unemployment
-due to number of jobs available in labor market–sometimes insufficient to provide a job for everyone who wants one
-longer spells of unemployment
-minimum wage laws, efficiency wages, unions
-caused by surplus of labor
cyclical unemployment
caused by a recession, business cycle, or lack of demand for goods and services
structural unemployment: minimum-wage laws
-can cause unemployment
-forces wages to remain above equilibrium level
–higher Q of labor supplied
–lower Q of labor demanded
–surplus of labor = unemployment
structural unemployment: unions
-raises wages above equilibrium level
–higher Q of labor supplied
–lower Q of labor demanded
–unemployment
-worse-off: unemployed
–take jobs in firms that aren’t unionized
structural unemployment: efficiency wages
-above-equilibrium wages paid by firms to increase worker productivity
-increased…
–worker health
–worker quality
–worker effort
-decreased…
–worker turnover
medium of exchange
-no double coincidence of wants
-item that buyer gives to sellers when they want to purchase goods and services
-facilitates trade
unit of account
-yardstick used to post prices and record debts
-value of an asset
-taking account of a loan
-placing monetary values on assets or items so can compare them
store of value
-item people can use to transfer purchasing power from present to future
-“putting money in the dresser” and being able to spend it later
–save money, purchase goods and services
commodity money
-money that takes the form of a commodity
-examples:
–gold
–silver
–animal hides
–cigarettes
fiat money
-money without intrinsic value
-money that has value because the government decreed it so
measures of money stock: M1
-checking account deposits
-traveler’s check
-checkable deposits
-currency
measures of money stock: M2
-all in M1
-savings deposits
-money market mutual funds
-etc.
The Federal Reserve (the Fed)
-central bank of USA
-to ⬆︎money supply
–BUYS bonds (so that Fed can loan to banks)
-to ⬇︎money supply
–SELLS bonds
fractional-reserve banking
banks hold only a fraction of deposits as reserves
reserve ratio
-fraction of deposits that banks can hold as reserves
-increase in this causes a decrease in money supply
reserve requirement
minimum amount reserves banks must hold; set by the Fed
money multiplier
-amount of money banking system generates with each dollar of reserves
-reciprocal of reserve ratio
discount rate
-interest rate on loans that Fed makes to banks
-⬆︎discount rate
–⬇︎money supply
-⬇︎ discount rate
–⬆︎money supply
federal funds rate
interest rate at which banks make overnight loans to one another
inflation
increase in overall level of prices
deflation
decrease in overall level of prices
disinflation
decrease in inflation rate
hyperinflation
very high rate of inflation
money demand
reflects how much wealth people want to hold in liquid form
money supply
-determined by the Fed and banking system
-curve is vertical
nominal variables
variables measured in monetary units; dollar prices; don’t affect real variables
real variables
variables measured in physical units; relative prices; real wages; real interest rate
monetary neutrality
-changes in MS don’t affect real variables
-not realistic in short-run
velocity of money
-rate at which money changes hands; average number of times a dollar has been spent in a year
-(P x Y) / M
-P = price level (GDP deflator)
-Y = real GDP
-M = quantity of money
-(P + Y) makes up nominal GDP
inflation tax
-revenue government collects by printing money
-like a tax on everyone who holds money
–when government prints money, P rises, and dollars in wallet are less valuable
–those who hold the most money are taxed the most
-loss of wealth due to printing money
Fisher effect
-one-for-one adjustment of nominal interest rate to inflation rate
-when Fed increases rate of money growth
-long-run result:
–higher inflation rate
–higher interest rate
principle of money neutrality
-an increase in the rate of money growth raises the rate of inflation
-does not affect any real variable
higher-than-expected inflation
-hurts savers
-benefits borrowers
when prices rise…
-buyers pay more
-sellers get more
-money neutrality
shoeleather costs
resources wasted when inflation encourages people to reduce their money holdings
menu costs
costs of changing prices
relative-price variability and misallocation of resources
costs of resources from relative prices not matching inflation
inflation-induced tax distortions
costs for incorrect incentives caused by taxes that don’t account for inflation
Categories: Macroeconomics