Macroeconomic Instability: Unemployment and Inflation

1
CHAPTER 8

• Macroeconomic Instability Unemployment and
  Inflation

2
I. Overview of the business cycle

• A. Historical record
• Leading Indicators
• B. Phases of the business cycle

3
II. Unemployment

• A. Definition Measuring unemployment (DIAGRAM)
• Shortcomings
• B. Types of unemployment
• Record of Unemployment (Statistics)

4
Measuring the Unemployment Rateand the Labor
Force Participation Rate

• The Household Survey

5

• What Explains the Increase in Kramers?

• Why do more men seem to be adopting Kramers
  lifestyle?

6

• Unemployment Rates for Demographic Groups

7
III. Inflation Defined and measured

• A. Defined Inflation is a rising general level
  of prices
• Absolute vs. Relative Price Changes
• Purchasing Power
• B. Measuring inflation Subtract last year's
  price index from this year's price index and
  divide by last year's index, then multiply by 100
• C. Theories/Types of inflation

8
(No Transcript)
9
Measuring Inflation

• Is the CPI Accurate?
• Substitution bias.
• Increase in quality bias.
• New product bias.
• Outlet bias.

10
Measuring Inflation

• The Producer Price Index
• Producer price index (PPI) An average of the
  prices received by producers of goods and
  services at all stages of the production process.

11
Real versus Nominal Interest Rates

• Nominal interest rate The stated interest rate
  on a loan.
• Real interest rate The nominal interest rate
  minus the inflation rate.
• Deflation A decline in the price level.

12
Does Inflation Pose Costs on the Economy?

• Inflation Affects the Distribution of Income
• The Problem with Anticipated Inflation
• Menu costs The costs to firms of changing
  prices.
• The Problem with Unanticipated Inflation