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CHAPTER 10: MACROECONOMICS PROBLEM

DEFINITION/CONCEPTS

INFLATION: A CONTINOUS INCREASE IN THE GENERAL PRICE LEVEL OF
GOODS AND SERVICES IN THE ECONOMY
CONSUMER PRICE INDEX: AN INDEX THAT MEASURES CHANGES IN THE
AVERAGE PRICE OF CONSUMER GOODS AND SERVICES

DEMAND-PULL INFLATION: AD > AS

COST-PUSH INFLATION: INCREASE IN THE GENERAL PRICE LEVEL
ASSOCIATED WITH AN INCREASE IN COST OF PRODUCTION

UNEMPLOYMENT: SITUATION WHERE LABOUR FORCE PARTICIPANTS ARE
AVAILABLE AND WILLING TO WORK BUT ARE UNABLE TO FIND JOBS

FRICTIONAL UNEMPLOYMENT: PEOPLE ARE BETWEEN JOBS, ENTERING AND
RE-ENTERING LABOR FORCE

CYCLICAL UNEMPLOYMENT: LACK OF JOBS DUE TO DOWNSIZING BUSINESS

STRUCTURAL UNEMPLOYMENT: STRUCTURAL CHANGES IN ECONOMY OF A
COUNTRY

SEASONAL UNEMPLOYMENT: SEASONAL VARIATION IN ACTIVITIES IN A
PARTICULAR INDUSTRIES

FORMULAE

INFLATION RATE: CPI THIS YEAR – CPI PREVIOUS YEAR / CPI PREVIOUS YEAR
X 100

UNEMPLOYMENT RATE: NO. OF UNEMPLOYED/LABOR FORCE X 100

TYPES

INFLATION

• DEMAND-PULL INFLATION
• COST-PUSH INFLATION
UNEMPLOYMENT

• FRICTIONAL
• CYCLICAL
• STRUCTURAL
• SEASONAL