Frictional Unemployment

-Unemployment due to the time workers spend in job search

-One reason a certain amount of its inevitablility is the constant process of job creation and job destruction

-The other reason is the fact that new workers are always entering the labor market.

-In January 2012, when unemployment was high, out of 14.8 million workers counted as unemployed, 1.2 million were new entrants to the workforce and another 3.6 million were coming back into teh workforce.

Structural Unemployment

-Unemployment that results when there are more people seeking jobs in a labor market than there are jobs available in that region.

-Structural unemployment occurs when the wage rate is, for some reason, persistently above the wage rate in excess.

-It affects minimum wage, labor unions, efficiency wages, and has side effects caused by public policy

-Binding minimum wage usually leads to structural unemployment because the government wants to ensure that peoplel who work can earn enough income to afford at least a minimally comfortable lifestyle.

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Natural Rate of Unemployment

-Is the normal unemployment rate around which the actual unemployment rate fluctuates.

-It is the rate of unemployment that arises from teh effectts of frictional plus structural unemployment.

Cyclical Unemployment

-Is the deviation of the actual rate of unemployment from the natural rate.

-It is the difference between the actual and natural rates of unemployment.

-It is the share of unemployment that arises from the business cycle

Real Wages

-The wage rate divided by the price level

-If you cut a worker's wage to ^1/7 of its previous value, but also cut all prices to ^1/7 of their previous level.

-If prices were lower, wages and adn incomes would be lower too.

Real Income

-Income divided by the price level

-The rise in priceS that has taken place since the early 1960s hasn't made America poorer, because it has also raised incomes by the same amount.

-It hasn't been affected by the rise in overall prices.

Inflation Rate

-The percent increase in the overall level of prices per year.

Inflation Rate=^{Price level in year 2 - price level in year 1}

                      ---------------------------------------- 

                          ^{Price level in year 1}

-In the 200s, the overall level of prices in the U.S. was much higher than it was in 1969

-The inflation rate in the 2000s was much lower than in the 1970s and that almost certainly made the economy richer than it would have been if high inflation had continued.

Menu Cost

- The real costs fo changing listed prices

-For example, to change a price in a supermarket may require a clerk to change the price listed under the item on the shelf and an office worker to change the price associated with the item's UPC code in the store's computer

-Causes higher costs for the economy as a whole

-When the inflation rate is high, merchants may decide to stop listing prices in terms of the local currency and use either an articicial unit or a more stable currency.

Unit-of-Account Costs of inflation

-Arises from the way inflation makes money a less reliable unit of measurement

- May be important in the tax system because inflation can distort the measures fo income on which income on which taxes are collected

-The economy as a whole makes less efficient use of its resources because of the uncertainty caused by changes in the unit of account, the dollar.

Nominal Interest Rate

-The interest rate actually paid for a loan

-It is unadjusted for the effects of inflation

-For example, the interest rates advertised on student loans and every interest rate you see listed by a bank is a nominal rate