Economics: Unit 2-Chapter 7/8: CPI and Inflation Over Time

Consumer price Index (CPI): Measures the cost of the market basket of goods of a typical urban american family. 

• CPI = ((Cost of market basket in a given year/Cost of market in a base year) * 100)
• Real GDP is adjusted for inflation

Inflation: General rise of the price level

Deflation: Fall of the price level

Rate of Inflation = ((CPI(1) - CPI(2))/CPI(2)) * 100)

Types of Inflation

1. Cost-Push Inflation: Higher production cost which increases prices
• Usually the result of a supply shock
2. Demand-Poll Inflation: Too many dealers chasing to few goods
• Shortage driving up the prices
• Overheated economy with excessive spending, but the same amount of goods.
3. Political Panics: Occurs at recessions or depressions

How inflation hurts or helps

Hurt

1. Lenders (loan at a fixed rate)
2. People with fixed income (elderly, disabled)
3. Savors
4. People with a fixed wage

Help

1. Debtors
2. Business where the price of the product increases faster than the price of resources.

Unemployment: The percentage of people who do not have jobs but their in the labor force

• Lobar Force = employed + unemployed

Not in the labor Force

• Kids who are 16 or younger
• Military Personnel
• mentally Insane
• Those licked up in prison
• Stay at home moms and dads
• Full-time students
• Retired People
• Discouraged

Employed vs. Unemployed 

Employed: People 16 and older who have a job

Unemployed: People 16 and older who have actively looked for a job for at leas 2 weeks

Unemployment Rate = (number of unemployed/labor force) * 100 

Types of Unemployment

1. Seasonal 
• Mall Santa during Christmas
• Concession stands for Texans
• School buses
• Lifeguards
2. Frictional: Between jobs
• Leave McDonald's to work at a University
3. Structural: Associated with a lack of skill or a declining industry
• Technology has changed
4. Cyclical: Bad for society and individuals
• Associated with the business cycle
• You have a recession

Full Employment: Occurs when their is no cyclical unemployment present in the economy

NRU (Natural Rate of Unemployment) = 4% to 5%

Okun's Law: For every 1% of unemployment above the NRU causes a 2% decline in the RGDP.