Chapter 8 Worksheet - Unemployment

Section8.1-How the Unemployment Rate is Defined and Computed

1. Give examples of those individuals in the population who are not interested in working, and thus are considered out of the labor force.

2. Who is considered part of the labor force?

3. Give the formula for calculating the unemployment rate. Consider Table 8.1. What was the unemployment rate in February 2015 (or the date presented in your text)? How does that compare to the current unemployment rate?

4. Give two examples of those who are the hidden unemployed.

5. Give the formula for calculating the labor force participation rate. Consider Table 8.1 What was the labor force participation rate in February 2015 (or the date presented in your text)? How does that compare to the current labor force participation rate i?

6. What is the difference between the unemployment rate and labor force participation rate?

7. How is US unemployment data collected?

8. What are some criticisms of the way the unemployment rate is measured?

Section8.2- Patterns of Unemployment

9. Describe the historical pattern of US Unemployment (Figure 8.3). What tends to be the range of unemployment rates over time?

10. Describe the differences in unemployment rates by sex, age, and by race and ethnicity (Figure 8.4).

11. Analyze the reasons for reported unemployment and the length of time unemployed (Tables 8.2 and 8.3).

12. Describe trends in US unemployment relative to other high income countries. Why is it more difficult to compare unemployment rates between rich countries and developing (poorer) countries?

Section8.3- What Causes Changes in Unemployment over the Short Run

13. Define cyclical unemployment, and describe how the presence of it challenges the presumption of efficient labor markets (i.e., wages return to equilibrium quickly and all workers supplied are demanded, leaving a 0% unemployment rate).

14. Why might wages be sticky downwards? Describe the various arguments for why this may be:

a. Implicit contract

b. Efficiency wage theory

c. Adverse selection of wage cuts argument

d. Insider-outsider model

e. Relative wage coordination argument

15. Graph the impact of a labor market experiencing a surplus and sticky wages downwards. Should we expect wages to fall and thus more employers to hire?

Section8.4- What Causes Changes in Unemployment over the Long Run

16. Describe what is meant by the natural unemployment rate.

17. Contrast frictional unemploymentfrom structural unemployment, and how together they determine the natural unemployment rate.

18. Relate the natural unemployment rate with the idea of potential real GDP.

19. How could changes in labor productivity levels, and corresponding increases in wages, lead to unemployment? What will need to happen to productivity to solve the labor surplus (Figure 8.8)?

20. How can public policy impact the natural rate of unemployment?

21. The natural rate of unemployment is argued to be lower in the 21st Century than in previous decades. Give 3 reasons to account for this.

22. Compare the US natural rate of unemployment to many countries in Europe. Why might countries differ in their natural rates of unemployment?

23. Define inflation.

Section9.1- Tracking Inflation

24. What is meant by the basket of goods and services?

25. A. Fill in the missing cells below. Calculate total expenditures in the current year and in the base year.

Total dollar expenditures: _____________ _________

26. Calculate the price index from the information in question 3. How much have average prices risen since the base year?

27. You discover that for a particular country, the price index increased from 212 to 218 between on year and the next. How much has the price level risen since the "base year"? What is the annual rate of inflation?

Section 9.2 - How Changes in the Cost of Living are Measured

28. What is the consumer price index (CPI)?

29. Discuss how measuring inflation can be misleading given the substitution bias and quality/new goods bias. How has the Bureau of Labor Statistics attempted to address it as of late?

30. List in order of biggest to smallest the eight major categories of the CPI (Figure 9.2).

31. How is core inflation index different from regular CPI?

32. Describe the other types of price indices

a. Producer Price Index (PPI)
b. International Price Index
c. Employment Cost Index
d. GDP deflator

Section9.3 - How the US and Other Countries Experience Inflation

33. Assess the trends in the US price level and inflation rates over the last 100 years, as well as over the last 30 years (Figure 9.3).

34. Define deflation, and identify two areas in US economic history where it occurred.

35. Define hyperinflation and identify some examples of this through history.

Section9.4- What Causes Changes in Unemployment over the Long Run

36. Describe how high rates of inflation impacts the following groups :

a. Between those who save and lend money and those that borrow money

b. Employers and employees?

c. Retirees living on a fixed income?

37. Describe the trend in the minimum wage over the last 50 years (Figure 9.6).

38. How can high rates of inflation "blur" price signals for both buyers and sellers in an economy?

39. How can inflation make long-term planning more difficult for both workers/households and firms?

40. Why are low rates of inflation preferred to deflation?

41. How can inflation "oil the gears" or make the labor market for flexible?

Section9.5- Indexing and its Limitations

42. What does it mean for price, wages, or interest rates to be "indexed"?

43. Describe "cost-of-living-adjustments" (COLAs) and adjustable-rate mortgages (ARMs) as examples of indexing.

44. How does the US government use indexing for

a. Tax brackets

b. Social Security

c. Indexed Bonds

45. Summarize the "Preview of Policy Discussions of Inflation". Where are we headed in this course?