A Headline Reads Economy Still in Recession the Type of Unemployment Most Closely Associated
Chapter ix - Concern Cycles, Unemployment, Inflation
This chapter provides an introductory look at the macroeconomic problems of unemployment and aggrandizement. Nosotros will study economic growth in greater detail in two weeks when we study chapters eight and 22 Web.
Review
Review: The three macroeconomic bug are:
- UE (unemployment)
- IN (aggrandizement)
- EG (economic growth)
Review: The Concern Cycle
Unemployment, inflation and economic growth tend to alter cyclically over time.
The four phases of the business organization bike:
1. A tiptop is when concern activity reaches a temporary maximum, unemployment is low, aggrandizement high.2. A recession is a decline in total output, unemployment rises and inflation falls.
3. The trough is the bottom of the recession catamenia, unemployment is at its highest, inflation is low.
iv. expansion (recovery) is when output is increasing, unemployment begins to fall and after inflation begins to rise.
Unemployment increases during business wheel recessions and decreases during business bicycle expansions (recoveries). Aggrandizement decreases during recessions and increases during expansions (recoveries).
Review: Maximizing Satisfaction
The primary reason to study unemployment is that information technology contributes to scarcity. Scarcity e'er exists since resources are limited and human wants are unlimited. At that place are five means to reduce scarcity - the five Es of economic science (see diagram below). Full employment is i of the five Es. We defined full employment as "using all available resources". If a society uses ALL AVAILABLE RESOURCES then more than appurtenances and services will exist produced and scarcity will be reduced
Another way to illustrate the effects of unemployed resource is with the production possibilities bend (meet graph below). Point "D" illustrates the effect of unemployment. Points "A", "B", and "C" stand for the maximum possible levels of production WITH FULL EMPLOYMENT. With unemployment, less will be produced (point "D").
Finally, nosotros accept illustrated unemployment before using the As-Advertizing model.
If the equilibrium level of output is less than the total employment level as illustrated on the graph above, this indicates that some bachelor resources are unemployed and less is beingness produced.
What is unemployment?
The unemployment rate in the United States was 4.5% in February, 2007 and nine.8% in September, 2009. Whenever we see a "%" nosotros have to ask "percent of what?" In Feb of 2007 4.v% of what was unemployed?
| Unemployment From where exercise the statistics come? [The following is from: http://stats.bls.gov/cps/cps_faq.htm ] Many people think that the unemployment charge per unit is a measure out of who is receiving an unemployment insurance cheque, in fact, it includes many more people than that. Because unemployment insurance records chronicle only to persons who accept applied for such benefits, and since it is impractical to actually count every unemployed person each month, the Regime conducts a monthly sample survey called the Current Population Survey (CPS) to mensurate the extent of unemployment in the country. The CPS has been conducted in the United States every month since 1940 when it began equally a Work Projects Administration projection. Information technology has been expanded and modified several times since then. As explained afterwards, the CPS estimates, beginning in 1994, reflect the results of a major redesign of the survey. The Unemployment Rate In September of 2000, the United states of america unemployment rate was 3.9%
What is Unemployment?
Definition If the unemployment charge per unit is iii.ix%, then 3.9% OF WHAT are unemployed? Information technology is NOT three.nine% of the population, but rather 3.9% of the LABOR Force. What is the labor force?
| US unemployment rates:
|
The authors of our textbook dissever the population into three groups:
- those nether historic period sixteen or institutionalized,
- those "not in labor force", and
- the labor strength that includes those historic period 16 and over who are willing and able to work, and actively seeking work (demonstrated job search activity inside the terminal four weeks).
SUMMARY:
| "Employed" includes:
| Not in the labor force:
|
Employed persons consist of:
[From http://stats.bls.gov/cps/cps_faq.htm ]
- All persons who did whatever work for pay or profit during the survey reference week.
- All persons who did at least fifteen hours of unpaid work in a family-operated enterprise.
- All persons who were temporarily absent from their regular jobs considering of illness, vacation, bad conditions, industrial dispute, or various personal reasons.
Unemployed persons are:
[From http://stats.bls.gov/cps/cps_faq.htm ]
- All persons who were non classified as employed during the survey reference calendar week, made specific active efforts to find a job during the prior 4 weeks, and were available for piece of work.
- All persons who were not working and were waiting to be called back to a job from which they had been temporarily laid off.
Two factors cause the official unemployment rate to understate actual unemployment.
- Part fourth dimension workers are counted every bit "employed."
- "Discouraged workers" who desire a job, only are no longer actively seeking i, are not counted as being in the labor forcefulness, so they are not part of unemployment statistic.
Calculating the Unemployment Rate
The unemployment rate is defined every bit the percentage of the labor forcefulness that is not employed. Note that it is NOT the percentage of the POPULATION.
To calculate the unemployment rate:
UE rate = (# unemployed / labor force) x 100
So using the data for 2007 above:
- the labor forcefulness = 153.i million people
- those unemployed = vii.1 million people
So the unemployment rate was:
(seven.one / 153.1) x 100 = 4.6 % of the labor strength.
What Is "Full Employment"?
Full employment equals between four and 5 % unemployment !!!
As nosotros discussed above, full employment results in reducing scarcity by producing the economy's potential level of output. The unemployment charge per unit in 2007 was four.5%, that amounts to about 71 million people unemployed. Remember that unemployed means not working but looking. So with seven.1 million people unemployed nosotros yet accept FULL EMPLOYMENT!!
How can four% to 5% unemployment be considered full employment?
How tin can vii.i million people looking for work be called "total employment?
It depends on how we ascertain full employment. We take defined full employment as using all available resources so as to achieve the potential level of output for an economy. Full employment is achieving the potential level of output. Then, with some types of unemployment an economy can however produce its potential level of output.
Full employment means achieving the potential output
As we learned in our AS-Advertising lesson "potential output" is Not the absolute maximum, but information technology is the potential level of output under normal circumstancesGraphically, the potential, or the full employment output can exist illustrated iii means:
1) Points A, B, and C on the production possibilities bend stand for a full employment of resource.
2) Equilibrium on the short run Advertising - As graph below is at the total employment level of output.
3) potential output is the level of output on the long run amass supply bend.
Economists estimate that about 4 %to 5% unemployment is Full Employment. This is called the "total employment rate of unemployment", or the "natural rate of unemployment" and it includes structural and frictional unemployment
What? To empathize how and economy with 4-5% unemployment can be achieving the potential level of output and therefore have "total" employment" , we must sympathise the three different types, or causes, of unemployment.
Types of Unemployment
To sympathise how nosotros can achieve the potential level of output and still take iv.5 % unemployment we must empathize the three types, or causes, of unemployment. The central to understanding what total employment means, is to consider what happens to output with each blazon of unemployment.
1. Frictional UnemploymentWHAT IS FRICTIONAL UNEMPLOYMENT?Frictional unemployment is the type of unemployment acquired past workers looking for their starting time job, voluntarily irresolute jobs, and by temporary layoffs. Information technology is unemployed workers between jobs. Frictional unemployment is "good" unemployment because without it the economic system could not exist producing equally much as possible (i.e. achieving the potential level of output).HOW DOES FRICTIONAL UNEMPLOYMENT AFFECT SCARCITY?
How tin the economic system be achieving the potential level of output if some people are frictionally unemployed? Commencement, frictional unemployment is NECESSARY in order for the economy is to achieve its potential level of output. For example, let'southward assume an engineering science educatee has just graduated from higher and is looking for a chore. He/she is frictionally unemployed. Would order's scarcity exist reduced as much every bit possible if that engineer takes the beginning job he/she finds? On the way home from graduation he/she sees a "HELP WANTED" sign, turns in, applies, and works the rest of his/her life at McDonald's. Is this good for lodge? OR would it exist ameliorate for society if they NOT accept that chore at McDonald'southward and remain frictionally unemployed longer? Nosotros need some frictional unemployment to get resources to the jobs where they produce the about so some frictional unemployment actually reduces scarcity. To produce equally much as possible with our limited resources nosotros demand some frictional unemployment.WHAT CAN THE Government DO TO REDUCE FRICTIONAL UNEMPLOYMENT?
Frictional unemployment tends to be short-lived, Simply we do not want information technology to concluding also long. If that engineer is unemployed for many years looking for only the right job, so at that place would be more scarcity than if he/she had taken the job at McDonald'due south. Therefore programs to keep information technology depression would assist reduce scarcity and governments accept such programs similar state employment offices and career placement offices at universities. These programs help people find jobs quicker so that more than can be produced.two. Structural Unemployment
WHAT IS STRUCTURAL UNEMPLOYMENT?Structural unemployment is unemployment of workers whose skills are non demanded past employers. They are unemployed because they lack sufficient skill to obtain employment, or they cannot hands move to locations where jobs are available.Structural unemployment can event from changes in the structure of need for labor; e.thousand., when certain skills become obsolete or geographic distribution of jobs changes.
HOW DOES STRUCTURAL UNEMPLOYMENT Touch on SCARCITY?
Structural unemployment results from people not having the necessary skills. If these people are unemployed, what happens to scarcity? Nothing! Zippo happens to scarcity is they are unemployed considering they don't have the skills needed to produce anything. Therefore we tin can still produce our potential level of output with our available resource even if there is structural unemployment. If resources without skills were put to work, they, past definition, couldn't produce anything considering they don't take the skills.WHAT CAN THE Regime DO TO REDUCE STRUCTURAL UNEMPLOYMENT?
But, exercise we desire these workers to just do nothing? NO. We studied in the 5Es lesson that more workers or better workers results in economic growth. Economic growth is increasing out potential level of output. This is good for society since information technology also reduces scarcity. Therefore governments have economic growth programs to reduce structural unemployment like financial aid for school and task preparation programs.
3. Cyclical Unemployment
WHAT IS CYCLICAL UNEMPLOYMENT?Cyclical unemployment is a blazon of unemployment caused by insufficient full spending (or by insufficient amass demand). It is unemployment caused by the recession phase of the business organization cycle. If there is less aggregate need firms respond past producing less. Output and employment are reduced. The extreme unemployment during the Great Depression (25 percent in 1933) was cyclical unemployment.HOW DOES CYCLICAL UNEMPLOYMENT Impact SCARCITY?
If at that place is a recession and therefore an increase in unemployment associated with a decrease in output, this results in more than scarcity. This is non skillful for society since information technology will be producing at a point inside its production possibilities curve (signal D on the graph beneath) or at a level of output curt of the full employment level.
WHAT Can THE Regime DO TO REDUCE CYCLICAL UNEMPLOYMENT?
Therefore, governments have policies to reduce cyclical unemployment. These are the demand direction policies discussed in our lesson on the Every bit-Advertising. Expansionary fiscal policies (increasing government spending or decreasing taxes) and piece of cake money policies (increasing the money supply) are designed to increase Ad, reduce cyclical unemployment, and and move the economy dorsum to the full employment level of output. .
It is sometimes not clear which type of unemployment describes a person's unemployment circumstances.
So to echo: economists estimate that about 4 %to five% is Total Employment. This is called the "total employment rate of unemployment", or the "natural rate of unemployment" and it includes:
- the frictional unemployment and
- the structural unemployment,
- but NO cyclical unemployment. In other words, full employment is zero cyclical unemployment.
If at that place is some frictional and structural unemployment in the economy can the potential level of output even so be accomplished? Aye, and economists estimate that in that location is between 4% and five% frictional and structural unemployment in the US economic system. that is why we are currently at, or below, full employment.
The "full employment charge per unit of unemployment" is the unemployment rate occurring when there is no cyclical unemployment and the economy is achieving its potential output
Changes in the Full Employment (Natural) Rate of Unemployment
The natural rate of unemployment is not fixed but depends on the demographic makeup of the labor force and the laws and community of the nations. in the United states in the 1060s the full employment rate of unemployment was around four%. this was the target of President Kennedy's tax cut plan In the 1970s the full employment rate of unemployment was around v%. and it was well-nigh 6% in the 1980s.
Why did the full employment rate of unemployment increase? Or, some other way of maxim this is "why did the amount of frictional and structural unemployment increase?" There were several cultural and demographic changes during these decades that resulted in more frictional and structural unemployment. After World War Ii ended in the 1940s the infant smash began. By the 1960s this big increase in population was beginning to enter the labor force. As they begin looking for their first jobs they were frictionally unemployed. Also during these decades the roles of women were changing and more women entered the labor force for the first time (frictional unemployment) and many did not take the necessary skills (structural unemployment).
Recently the natural rate has dropped from half dozen% to 4 to five%. This is attributed to (1) the crumbling of the work force with fewer new entrants reducing frictional unemployment, (ii) improved job information through the internet and temporary-help agencies which also reduces frictional unemployment, (3) new work requirements passed past congress with the most recent welfare reform which encourage those who are frictionally unemployed to attempt to get a job quicker, and finally, (4) the doubling of the The states prison population since 1985 has removed from the labor strength a group of people who have a loftier rate of unemployment.
- Quick Quiz
Costs of Unemployment
Gdp gap
Equally we have discussed many times, the trouble with unemployed resources is that they could accept been used to produce more boats - - or cars or whatsoever it is that lodge wants. With unemployment there is more SCARCITY. This loss of goods that could have been produced if we had used all of our resources is chosen the GDP gap and it is a measure of the cost of unemployment.
GDP gap: The amount past which actual gdp falls below potential gross domestic product. GDP correspond Gross Domestic Production. Nosotros will study how to measure Gdp in chapter 6 next calendar week. For at present, GDP is a mensurate of how much is produced in an economy in a year.
If the GDP gap is negative so the potential Gdp > the actual Gdp and economy is not producing equally much equally possible. This is how much more output could take been produced if there was full employment. The Gross domestic product gap then is the lost output acquired by not having full employment.
If the Gdp gap is positive then the actual Gdp is > the potential GDP. It is possible to have a positive GDP gap if AD is very high and it crosses the Every bit curve in the classical range BEYOND the total employment level of real domestic output. The effect is high inflation.
One style to measure this cost is with Okun's Law. Economist Arthur Okun quantified the relationship between unemployment and GDP as follows: For every 1 percent of unemployment above the natural rate, a negative Gdp gap of near 2 percent occurs. This is known every bit "Okun's law." What this ways is for every ane pct point decrease in the unemployment rate output increases almost 2%. The larger increase in output is due to more people (discouraged workers) reentering the labor force. So a 1% decrease in unemployment really means that there are more than 1% more people working.
Non Economical Costs
In that location are too many non-economic costs associated with aggrandizement. These costs include:
Unequal burdens of unemployment be.
- Rates are lower for white collar workers.
- Teenagers take the highest rates.
- African-Americans take higher rates than whites.
- Rates for males and females are comparable, though females had a lower rate in 2002.
- Less educated workers, on average, have higher unemployment rates than workers with more than didactics.
- "Long term" (15 weeks or more) unemployment rate is much lower than the overall rate, although it has nearly doubled from one.ane% in 1999 to two% in 2002.
- Noneconomic costs include loss of self respect and social and political unrest.
What is Inflation?
Measuring Inflation
http://www.bls.gov/
Inflation is the annual charge per unit of increment in the price level.
United states of america aggrandizement rates:
In January of 2007 the inflation charge per unit was 2.1 %. Only what does this hateful? 2.i% of what? An inflation rate of 2.1% in Jan of 2007 means that the price level was 2.1% college than it was in January of 2006. In the affiliate on amass supply and aggregate demand we learned that the toll level is "the average level of prices in the economy". We find the price level on the vertical axis of the AS-Advertizing graph.
But how is the toll level measured? What numbers would 1 put along the vertical axis? How can nosotros measure the average level of prices in an economy? To do this economists use a "price alphabetize". In order to summate inflation we need to know how the price level is measured, therefore we need to acquire most a cost alphabetize.
Measuring Aggrandizement: Price index
Our textbook defines a toll alphabetize in an index number which shows how the weighted average toll of a "market place basket" of goods changes over time. What does that mean? There are two price indices that we will employ this semester. We will report the Gross domestic product Cost Index in the chapter on measuring GDP (or real domestic output - RDO). To larn how to measure inflation nosotros will use the CPI, the consumer price index.
The CPI is an index which measures the prices of a stock-still "market basket" of over 200 categories of goods and services bought past a "typical" consumer in.
It works this way:
A list of over 200 items bought by the typical consumer is drawn up. The listing is and then "weighted" pregnant that they do not include 1 car, 1, calculator, i house, 1 pizza, 1 gallon of gasoline, etc. Instead they "weight" each particular co-ordinate to its share in the typical consumer's budget. Each month information collectors collect prices of each item in the "market handbasket" and an average price is calculated. The price of the marketplace handbasket each month is compare to its toll in a "base year". So the numbers in the CPI tell us the value of the marketplace basket each year As A Per centum OF ITS VALUE IN A BASE Twelvemonth The years 1982-1984 accept been selected as "base year" and assigned the index number of 100 (see table at right)..
So, in 1988 the CPI was 118.3 which means that the price of the market place basket in 1988 was 118.3% of what it was in the base year. Or the price was 18.3 % higher than in the base of operations year.
[From http://www.bls.gov/cpi/cpifaq.htm]
Each month, BLS data collectors called economic administration visit or call thousands of retail stores, service establishments, rental units, and doctors' offices, all over the United states to obtain information on the prices of the thousands of items used to track and measure price changes in the CPI. These economic assistants tape the prices of about 80,000 items each month representing a scientifically selected sample of the prices paid by consumers for the goods and services purchased.
During each call or visit, the economical assistant collects toll data on a specific good or service that was precisely defined during an earlier visit. If the selected item is available, the economical assistant records its price. If the selected particular is no longer available, or if there have been changes in the quality or quantity (for instance, eggs sold in packages of viii when they previously had been sold by the dozen) of the proficient or service since the concluding time prices had been collected, the economical assistant selects a new particular or records the quality change in the current detail.
The recorded information is sent to the national office of BLS where commodity specialists who accept detailed knowledge about the particular goods or services priced review the data. These specialists check the data for accuracy and consistency and make any necessary corrections or adjustments which can range from an aligning for a change in the size or quantity of a packaged detail to more complex adjustments based upon statistical analysis of the value of an detail'south features or quality. Thus, the commodity specialists strive to prevent changes in the quality of items from affecting the CPI's measurement of cost change.
Twelvemonth
CPI
1976
56.nine 1977
threescore.6 1978
65.2 1979
72.6 1980
82.4 1981
90.nine 1982
96.five 1983
99.6 1984
103.nine 1985
107.half-dozen 1986
109.half dozen 1987
113.6 1988
118.3 1989
124.0 1990
130.7 1991
136.2 1992
140.3 1993
144.five 1994
148.2 1995
152.4 1996
156.nine 1997
160.5 1998
163.0 1999
166.6 2000 172.2 2001 177.i 2002 179.nine 2003 184.0 2004 189.9 2005 195.3 2006 201.six 2007 207.3 2008 215.3 READ THE Following THEN CLICK ON THE LINK Below AND LISTEN TO THE v Minute RADIO REPORT ON THE CPI
All Things Considered
National Public Radio
Wed., July 19, 2006"Shopping for the Consumer Price Index"
http://www.npr.org/templates/story/story.php?storyId=5568606
All Things Considered, July 19, 2006 · The Bureau of Labor Statistics today released the monthly Consumer Price Index, a fundamental economic indicator that tracks inflation. To track prices, the Labor Department sends out hundreds of people around the country to monitor prices for everything Americans buy -- from tires to nutrient and higher tuition.
Robert Siegel went shopping with Caren Gaffney to find out how the Consumer Price Index is compiled. On the outing, Gaffney, a former telecommunication executive, checked prices in ii grocery stores in the Washington, D.C., expanse. Siegel discusses the index with economists Marking Zandy of Moody'southward Economy.com, the Cleveland Federal Reserve's Michael Bryan and the University of Rochester's Marker Bils.
OPTIONAL- More info. on the CPI: http://stats.bls.gov/cpifaq.htm
OPTIONAL - how the CPI is measured: http://stats.bls.gov/cpifact2.htm
Calculating Inflation - - - - KNOW THIS !!!!!!
Since a toll index measures the price level every bit a pct of a base year and aggrandizement measures the change in the price index from the previous year, to calculate the inflation rate we use the following formula:
Inflation rt. for current twelvemonth = x 100
And so to calculate the aggrandizement rate for 1999 using the CPI data above:
Aggrandizement rate for 1999 = x 100
Inflation rate for 1999 = ten 100 = 2.2 %
For fun effort these online inflation calculators:
- Aggrandizement Estimator
- CPI Calculator
USING A Price INDEX
THE PRICE OF GASOLINE:March of 1981: $ane.66; CPI = 88.5 (base yr: 1982-84)
April of 2005: $ii:thirty; CPI = 192
When did gasoline cost more?
- http://data.bls.gov/cgi-bin/cpicalc.pl
- http://world wide web.westegg.com/aggrandizement/
- http://world wide web.aier.org/colcalc.html
- http://www1.jsc.nasa.gov/bu2/inflateCPI.html
How the Toll-of-Living Calculator Works This calculator uses the Consumer Price Alphabetize (1982-84=100) and the following simple formula to catechumen dollar amounts between two unlike years.
Converted$ = (StartYear$ / StartYearCPI) * ConvertYearCPI
Any time you compare dollar amounts over fourth dimension, the amounts should be adapted for price inflation. With this computer, you tin compare the existent buying power of any dollar amount you enter in the box. For example, $100 in 1913 had the aforementioned ownership power equally $1,584.85 in 1996.
http://www.aier.org/aboutcpi.html
- Historical CPI:
- http://world wide web.inflationdata.com/inflation/Consumer_Price_Index/HistoricalCPI.aspx
- http://woodrow.mpls.frb.fed.the states/enquiry/data/united states of america/calc/hist1913.cfm
The Rule of seventy - - - - KNOW THIS !!!!!!
The rule of 70 is a quick way to estimate how long it volition have for something (like prices) to double if y'all know the annual percentage increment (like aggrandizement).
To determine the number of years it will take for the price level to double; separate 70 by the annual rate of inflation.
| | |
| estimate number of years to double = | |
| |
For example, if the aggrandizement charge per unit is three%, information technology volition take 23 1/three years for prices to double.
| | |||
| approx. number of years to double = | | = | 23.33 years |
| |
This handy little dominion tin be used for many things.
If the population of a country is growing at a rate of 1% a year (which is nearly the population growth rate of the U.s.a.), how many years until the population doubles?
| | |||
| approx. number of years to double = | | = | 70 years |
| |
What if the population growth charge per unit is 4 % a year?
approx. number of years to double = = 17.5 years
Types / Causes / Theories of Inflation
Demand-Pull inflation
Need-pull aggrandizement is aggrandizement acquired by too much spending (and increase in AD).Demand-pull inflation occurs when spending (Advertising) increases faster than production (Equally).I
There is not demand pull aggrandizement every fourth dimension Advertising increases. If AD crosses Equally in the Keynesian range of the AS bend (AD1 and AD@ in the graph beneath) then an increase in Advertizing will not cause an increase in the price level and there volition be no inflation. If AD increases in the intermediate range or the Classical range the result will exist a ascension price level and aggrandizement.
Toll-push (or supply-side) aggrandizement
Toll-push or supply-side inflation caused by reductions in aggregate supply. The main causes of cost-push inflation are (1) "wage-push" as result of union strength and (two) supply shocks that may occur with unexpected increases in the toll of raw materials.
Effects of Inflation
There are ii major effects of inflation. "Redistributive furnishings" ways that inflation affects different groups differently. Some people are hurt by aggrandizement and some people are helped by aggrandizement. The "output effects" of aggrandizement include its bear on on how much is produced in an economy.
Redistributive effects of inflation:
- Stock-still-income groups will be injure past inflation because their existent income suffers. Their nominal income (the size of their paychecks) does non rise with prices, only if their is inflation the purchasing ability of their paycheck, or their real income, would decrease.
- Note "flexible income receivers" like those who receive social security payments avoid existence injure by aggrandizement. Social security payments are not fixed since they take a cost-of-living-adjustment or COLA. This is an automated increase in the incomes when inflation occurs. Some union contracts as well accept COLA clauses.
- Savers will be hurt by unanticipated aggrandizement, because interest rate returns may not embrace the cost of inflation. Their savings will lose purchasing power.
- Debtors (borrowers) can be helped by unanticipated inflation. Involvement payments may be less than the inflation rate, so borrowers receive "dear" money and are paying dorsum "inexpensive" dollars that have less purchasing ability for the lender.
- Creditors (lenders) are injure by unanticipated inflation since they will charge an interest rate that is "besides low" since they did not wait to be paid back with dollars that are less valuable.
- If inflation is anticipated, the effects of inflation may be less astringent, since wage and pension contracts may have aggrandizement clauses built in, and involvement rates volition be high enough to cover the cost of inflation to savers and lenders.
- "Inflation premium" is amount that interest charge per unit is raised to cover furnishings of anticipated inflation.
- "Real interest charge per unit" is defined as nominal rate minus inflation premium. (Meet Effigy 8-half dozen)
- anticipated: Increases in the price level (aggrandizement) which occur at the expected rate
- unanticipated: Increases in the cost level (inflation) at a rate greater than expected.
Output Furnishings of Aggrandizement
Demand-pull inflation has a stimulus effect on the economy resulting in greater output. Come across graph below.
Cost-push button inflation has a contractionary effect resulting in less output.
Hyperinflation is a very rapid ascent in the price level. It results in LESS OUTPUT considering:
- people no longer will accept coin since it is losing its value very quickly
- they will therefore either
- barter, or
- produce everything for themselves
- Therefore, guild will not benefit from the gains in output acquired by specialization and exchange (merchandise) and LESS WILL Exist PRODUCED.
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Source: http://www2.harpercollege.edu/mhealy/eco212i/lectures/ch9-18.htm
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