Bài giảng Understanding Economics - Chapter 10 Inflation and Unemployment

Understanding EconomicsChapter 10Inflation and UnemploymentCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.2nd edition by Mark Lovewell and Khoa NguyenChapter ObjectivesIn this chapter you will:learn about inflation, how it is measured, and its effect on nominal and real incomesexamine the official unemployment rate, the different types of unemployment, and the definition of full employmentCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.The Consumer Price IndexThe consumer price index (CPI)is the most common measure of inflationmonitors price changes in a representative “shopping basket” of consumer productsincludes quantities in a shopping basket determined in a base yearcompares prices in the current year with those in the base yearCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Simple Consumer Price IndexFigure 10.1, Page 237PricesQuantityConsumedper MonthExpenditureper MonthWeights$20$30$50$20 ÷ $50 = 0.4$40 ÷ $50 = 0.61030$2.00$1.00HamburgersMilkshakesResults of 2000 SurveyPrices2001 Price 2000 Quantity$2.20 x 10 = $22.00$1.05 x 30 = $31.50$53.50$2.20$1.05HamburgersMilkshakesPrices in 2001Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Consumer Price Index Weights (1992)Figure 10.2, Page 238Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Food 18.0%Shelter 27.9%Household operationsand furnishings 10.0%Clothing and footwear (6.6%)Transportation 18.3%Health and personal care 4.3%Recreation, education,and reading 10.4%Alcoholic beverages andtobacco products 4.5%Nominal Versus Real IncomeNominal income is expressed in current dollarsReal incomeis expressed in base-year dollarsequals nominal income divided by CPI (expressed in hundredths)Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.The Limitations of the CPIThe CPI does not take full account ofconsumer differences, since it is based on the consumption patterns of an average householdchanges in spending patterns since it uses base-year quantitiesimprovements in product qualityCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.The GDP DeflatorThe GDP deflatorindicates price changes for all products appearing in GDPincludes quantities that change each yearcompares prices in the current year with those in a base yearCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Simple GDP DeflatorFigure 10.3Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. (1)Year(2)Output ofMicrochips(3)CurrentPrice(4)Output atCurrent Price(2) X (3)$0.200.300.40$2006001000100020002500200020012002(5)Output at2000 Price(2) X $0.20$200400500(6)GDPDeflator[(4) ÷ (5)] x 100100150200Finding Real Gross Domestic ProductFigure 10.4, Page 241Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. (1)Year(2)Nominal GDP(current $ billions)(3)GDP Deflator(1992 = 100)23.47100.00112.73$76.3698.51038.8196819922000(4)Real GDP(1992 $ billions)[(2) ÷ (3)] x 100$325.1698.5921.5Nominal Versus Real GDPNominal GDPis expressed in current dollarsReal GDPis expressed in base-year dollarsequals nominal GDP divided by the GDP deflator (expressed in hundredths)Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.The Inflation RateFigure 10.5, Page 242Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.193019351940194519501955196019651970197519801985199019952000-10-5051015YearInflation Rate (%)Inflation’s Effects (a)Inflation redistributes purchasing power in arbitrary ways because of various types of indexationfull indexation (nominal income rises at the inflation rate)partial indexation (nominal income rises at less than the inflation rate)fixed incomes (nominal income stays constant)Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Inflation’s Effects (b)Inflation can also redistribute purchasing power between borrowers and lendersborrowers win if actual inflation > anticipated inflationlenders win if actual inflation < anticipated inflationborrowers and lenders are unaffected if actual inflation = anticipated inflationCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.The Labour Force Survey (a)The labour force survey tracks a randomly selected sample of Canadian householdsThe survey measuresthe labour force population, which includes Canadians 15 years of age or over, with specific exclusionsthe labour force, which includes all those who either have a job or are actively seeking employmentCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.The Labour Force Survey (b)The survey also measuresthe participation rate which is the percentage of the labour force population that makes up the labour forcethe official unemployment rate which is the number of unemployed people in the labour force as a percentage of the entire labour forceCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Participation RatesFigure 10.6, Page 246Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.197519801985199019952000020506080YearLabour Force Population in Labour Force (%)Men25 years and over15-24 yearsWomenThe Canadian Labour Force (2000)Figure 10.7, Page 246Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Participation rate =labour forcelabour force populationx 100 =15 999 00024 285 000x 100 = 65.9%Unemployment rate (%)=Unemployed in labour forcelabour forcex 100 =1 090 00015 999 000x 100 = 6.8%Drawbacks of the Official Unemployment RateThere are three main drawbacks of the official unemployment rateit does not include underemployed workers who are underutilized either as part-time workers or by working at jobs not appropriate to their skills or educationit excludes discouraged workers who are unemployed and have given up looking for workit may depend on dishonest responsesCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Types of UnemploymentThere are four types of unemploymentfrictional unemployment is due to being temporarily between jobs or looking for a first jobstructural unemployment is due to a mismatch between people and jobscyclical unemployment is due to fluctuations in output and spendingseasonal unemployment is due to the seasonal nature of some occupations and industriesCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Full EmploymentFull employmentis the highest reasonable expectation of employment for the economy as a wholeis defined in terms of the natural unemployment rate, which includes frictional and at least some structural unemploymentin Canada is presently associated with an unemployment rate between 6% and 7%Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.The Unemployment RateFigure 10.8, Page 249Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.1930194019501960197001020Unemployment Rate (%)198019902000YearThe Rise in the Natural Unemployment RateIn recent decades Canada’s estimated natural unemployment rate rose because of several main trendsstructural change, with shrinking manufacturing and expanding servicespast reforms to unemployment insurance (some of which have been reversed)higher minimum wages in many provincesCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Unemployment Rates by Province, Gender, and Age (2000) Figure 10.9, Page 251Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.16.75.712.010.08.49.14.95.25.07.26.76.912.65.7ProvinceGenderAgeUnemployment rate (%)NewPEINSNBQueOntManSaskAltaBCWomenMen15-2425+51015The Costs of UnemploymentHigh unemployment hurts individuals and the Canadian economy as a wholeThe cost of unemployment for the entire economy can be measured by the difference between actual real output and potential output which is the real output associated with full employmentCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Okun’s LawAccording to Okun’s Law for every % point that the unemployment rate exceeds the natural unemployment rate the gap between potential output and real output is 2.5%Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Boom Bust & Echo (a)David Foot suggests that our ages can give us insights into our economic futuresthe baby boom generation (born between 1947 and 1966) which includes Generation X (born between 1960 and 1966)the baby bust generation (born between 1967 and 1979)the baby boom echo (born between 1980 and 1995) which includes Generation X-II (born between 1990 and 1995)Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Boom Bust & Echo (b)According to Footeconomic conditions are easiest for the baby bust generation and the first parts of the baby boom generation and baby boom echoeconomic conditions are hardest for Generation X and Generation X-IICopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Canada’s Population Pyramids, 1998Figure A, Page 257Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Population in thousands300250200150100500501001502002503000102030405060708090AgeMaleFemaleUnderstanding EconomicsChapter 10The EndCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.2nd editionby Mark Lovewell