Production Unemployment And Inflation, Full Employment

Macroeconomics
Name
Institutional Affiliation
1 Why is there unemployment when the economy is at “full employment”? What are some “costs of unemployment”?
Unemployment is considered to be a bad thing when considering any nation in the world. Certain economists have argued that there are natural levels of unemployment and that they cannot be erased. However, the trend in recent years has been that the number of unemployed people are outnumbering the number of employed people. This depletes the resources that a country has at a high rate through overdependence by the unemployed people ADDIN CSL_CITATION { "citationItems" : [ { "id" : "ITEM-1", "itemData" : { "DOI" : "10.1007/s13398-014-0173-7.2", "ISBN" : "9780273728009", "ISSN" : "0717-6163", "PMID" : "15003161", "abstract" : "Macroeconomics: A European Perspective will give students a fuller understanding of the subject and has been fully updated to provide broad coverage of the financial crisis. In particular, this new edition provides: NEW chapters and updated text across all chapters NEW data on Europe and the financial crisis And what has always been the strength of the book: A unified view of macroeconomics, enabling students to make the connections between the short, medium, and long run. \"This is a truly outstanding textbook that beautifully marries theory, empirics and policy. It is surely destined to become the gold standard against which all other texts must be measured.\" Charles Bean, Deputy Governor, Bank of England \"Refreshingly original for an undergraduate text. Relevant applications to European economies and elsewhere are plentiful, and the breadth of topics covered is truly impressive. Unlike many texts at this level, the authors do not avoid potentially tricky, yet important topics; they do their utmost to relate textbook theory to real-world economics. Relative to competing texts, I think students would find this more engaging.\" Paul Scanlon, Trinity College Dublin \"Up-to-date material on the Euro, especially in light of the current crisis; strong open economy emphasis; and lots of examples from European countries. There is so much new material on the monetary union that there is much less need for supplementary reading.\" Pekka Ilmakunnas, Aalto University School of Economics", "author" : [ { "dropping-particle" : "", "family" : "Blanchard", "given" : "Olivier", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" }, { "dropping-particle" : "", "family" : "Amighini", "given" : "Alessia", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" }, { "dropping-particle" : "", "family" : "Giavazzi", "given" : "Francesco", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" } ], "container-title" : "Business", "id" : "ITEM-1", "issued" : { "date-parts" : [ [ "2010" ] ] }, "number-of-pages" : "586", "title" : "Macroeconomics: a european perspective", "type" : "book" }, "uris" : [ "/documents/?uuid=f57b775d-2532-4a09-b1c3-8e77efcc7018" ] } ], "mendeley" : { "formattedCitation" : "(Blanchard, Amighini, & Giavazzi, 2010)", "plainTextFormattedCitation" : "(Blanchard, Amighini, & Giavazzi, 2010)", "previouslyFormattedCitation" : "(Blanchard, Amighini, & Giavazzi, 2010)" }, "properties" : { "noteIndex" : 0 }, "schema" : "https://github.com/citation-style-language/schema/raw/master/csl-citation.json" }(Blanchard, Amighini, & Giavazzi, 2010).
Full employment is a state in which services that are needed by various companies within a market have been fully occupied. The increasing levels of education have become available to a larger number of people over the past decade thus more people have become qualified to occupy the available positions in various firms. Some of them are picked to fill the available positions and others are left out of these opportunities. The cycle becomes repetitive throughout various regimes and as the population of different countries grows, more young people are out of jobs due to the filling of these positions. Another cause of the unemployment status at full employment is that part of the frictional unemployment is abnormal. The frictional unemployment depends on the employment rate observed in a country. The employment rate is in turn affected by the school to job or job to job changes of different participants of work in the economy. The case is different for white people as well as the African-American people.
Some costs of unemployment involve costs to the individual, costs to the society and costs to the country. The overdependence of the unemployed people on the resources that are needed by each of these categories become full blown and the effects are spread even to the employed people.
2 Is the CPI a biased measure of the inflation rate? Explain your answer.
The CPI is a biased measure of the inflation rate. The CPI overstates the inflation rate because of biases such as new product bias, substitution bias, outlet bias and quality bias.
New product bias affects the inflation rate in that they are not reflected in the index until the time that they are in the commonplace. Therefore, changes in technology that result in the price hiking of certain products are not included in the index. This hides some information as it is important to know how the introduction of new products in a market affect the inflation rate. Since they are not reflected in the index, it becomes difficult to know their real impact in the market ADDIN CSL_CITATION { "citationItems" : [ { "id" : "ITEM-1", "itemData" : { "abstract" : "T he Consumer Price Index (CPI) is a measure of the average change over time in the prices of consumer items\u2014goods and services that people buy for day- to-day living. The CPI is a complex construct that combines economic theory with sampling and other statistical tech- niques and uses data from several surveys to produce a timely and precise measure of average price change for the consumption sector of the American economy. Production of the CPI requires the skills of many professionals, includ- ing economists, statisticians, computer scientists, data col- lectors, and others. The CPI\u2019s surveys rely on the voluntary cooperation of many people and establishments through- out the country who, without compulsion or compensation, supply data to the Government's data collection staff.", "author" : [ { "dropping-particle" : "", "family" : "Bureau", "given" : "U S", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" }, { "dropping-particle" : "", "family" : "Statistics", "given" : "Labor", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" } ], "container-title" : "BLS Handbook of Methods", "id" : "ITEM-1", "issued" : { "date-parts" : [ [ "2007" ] ] }, "title" : "The Consumer Price Index", "type" : "article-journal" }, "uris" : [ "/documents/?uuid=8390ab63-67f6-457b-89d0-862417b40164" ] } ], "mendeley" : { "formattedCitation" : "(Bureau & Statistics, 2007)", "plainTextFormattedCitation" : "(Bureau & Statistics, 2007)", "previouslyFormattedCitation" : "(Bureau & Statistics, 2007)" }, "properties" : { "noteIndex" : 0 }, "schema" : "https://github.com/citation-style-language/schema/raw/master/csl-citation.json" }(Bureau & Statistics, 2007).
Quality bias involves the improvement or depreciation of the quality of a product over time when already introduced in the market. Such improvements or depreciations are not reflected in the CPI even though they have an effect on the cost of the product in its life cycle. The improvements or depreciations have some influence on the opinions that the customers have regarding the product. They should therefore be included in the CPI.
Outlet bias involves the fact that most of the goods included in the CPI are given by some of the leading firms in the market. The commodities included in the computation of the CPI should be found in as many stores as possible. The importance of this is to include the customer shift that occurs when a group of customers favor one store over another. Inclusion of the hardly mentioned stores should bring balance to the CPI since it will cover a wider range of views from customers and store owners as well ADDIN CSL_CITATION { "citationItems" : [ { "id" : "ITEM-1", "itemData" : { "abstract" : "T he Consumer Price Index (CPI) is a measure of the average change over time in the prices of consumer items\u2014goods and services that people buy for day- to-day living. The CPI is a complex construct that combines economic theory with sampling and other statistical tech- niques and uses data from several surveys to produce a timely and precise measure of average price change for the consumption sector of the American economy. Production of the CPI requires the skills of many professionals, includ- ing economists, statisticians, computer scientists, data col- lectors, and others. The CPI\u2019s surveys rely on the voluntary cooperation of many people and establishments through- out the country who, without compulsion or compensation, supply data to the Government's data collection staff.", "author" : [ { "dropping-particle" : "", "family" : "Bureau", "given" : "U S", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" }, { "dropping-particle" : "", "family" : "Statistics", "given" : "Labor", "non-dropping-particle" : "", "parse-names" : false, "suffix" : "" } ], "container-title" : "BLS Handbook of Methods", "id" : "ITEM-1", "issued" : { "date-parts" : [ [ "2007" ] ] }, "title" : "The Consumer Price Index", "type" : "article-journal" }, "uris" : [ "/documents/?uuid=8390ab63-67f6-457b-89d0-862417b40164" ] } ], "mendeley" : { "formattedCitation" : "(Bureau & Statistics, 2007)", "plainTextFormattedCitation" : "(Bureau & Statistics, 2007)", "previouslyFormattedCitation" : "(Bureau & Statistics, 2007)" }, "properties" : { "noteIndex" : 0 }, "schema" : "https://github.com/citation-style-language/schema/raw/master/csl-citation.json" }(Bureau & Statistics, 2007).
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