Inflation and unemployment kuliah umum ITB Pengantar Ekonomika

Kuliah pengantar ekonomika ITB

1. PL21 51 PENGANTAR EKONOMIKA LECTURERS : KNP, SHR. INFLATION AND UNEMPLOYMENT

2. Consumer Price Index (CPI) CPI measures the cost of purchasing a fixed basket of goods and services in any periods relative to the cost of the same basket of goods and services in a base year CPI = cost of fixed basket of goods and services in current year cost of fixed basket of goods and services in base year

3. Inflation Inflation : the annual percentage rate of change in the price level, as measured for example, by the CPI Inflation rate = CPIt – CPIt-1 x 100% CPIt-1 Core Inflation : The rate of increase of all prices except volatile price (food) Hyperinflation : a situation in which the inflation rate is extremely high Deflation : a situation in which the price of most goods and services are falling over time so that inflation is negative

4. The Costs of Inflation “Noise” in the price system, which occurs when general inflation makes it difficult for market participants to interpret the information conveyed by prices Distortion of the tax system “Shoe-Leather” cost, cost of economizing on cash by making more frequent trips to the bank Unexpected redistributions of wealth Interference with long-term planning, because people find it difficult to forecast prices over long periods

5. Unemployment Each person who is 16 years or older (Indonesia: age>15 years) is placed in one of three categories: Employed. A person is employed if he or she worked full time or part time (even for a few hours) during the past week or is on vacation or sick leave from a regular job Unemployed . A person is unemployed if he or she did not work during the preceding week but made some effort to find work in the past four weeks Not in the labor force. A person is considered to the out of the labor force if he or she did not work in the past week and did not look for work in the past four weeks. (student, unpaid homemakers, retirees, disabilities) Labor force : the total number of employed and unemployed people

6. Unemployment Rate Unemployment rate = Number of unemployed x 100% Labor force Labor force participation rate = Labor force x 100% Adult population

7. Types of unemployment Frictional unemployment : the short term unemployment associated with the process of matching workers and jobs Structural unemployment : the long term and chronic unemployment that exists even when the economy is producing at the normal rate Cyclical unemployment : the extra unemployment that occurs during periods of recession

8. Impediment to full employment Minimum wage laws Labor union Unemployment insurance Other government regulation

9. Exercise : Problem 1 Government survey takers determine that typical family expenditure each month designated as the base year are as follows: 20 pizza at $10 each; Rent of apartment, $600; Gasoline and car maintenance, $100; Phone service, $50. In the year following the base year, the survey takers determine that pizzas have risen to $11 each, apartment rent $640, gasoline and maintenance have risen to $120, and phone services has dropped in price to $40 Find the CPI in the subsequent year and the rate of inflation between the base year and the subsequent year. The family’s nominal income rose by 5% between the base year and the subsequent year. Are they worse off or better off of what their income is able to buy?