XIV. Types of unemployment

• Cyclical unemployment is unemployment caused by the lack of jobs during a recession.

• Frictional unemployment is unemployment caused by the normal search time required by workers with marketable skills who are changing jobs, initially entering the labour force, re-entering the labour force, or seasonally unemployed.

• Structural unemployment is unemployment caused by a mismatch of the skills required for existing job opportunities.

• Full employment is the situation in which an economy operates at an unemployment rate equal to the sum of the frictional and structural unemployment rates.

XV. Inflation

• Inflation is a situation in which a decline in the purchasing power of money results in a rise of the general price level.

• Deflation is a decrease in the general level of prices.

• Disinflation is a reduction in the inflation rate.

• Hyperinflation is an extremely rapid rise in the general price level.

• Price stability is the boundary between inflation and deflation.

• A price index measures the average level of prices in one period as a percentage of their average level in an earlier period called the base period.

• Consumer price index (CPI) measures changes in the average prices of consumer goods and services.

• The inflation rate is the percentage change in the price level.

XVI. Types of inflation

• Demand-pull inflation is a rise in the general price level resulting from an excess of total spending (demand).

• Demand-pull inflation is usually associated with

• conditions of full employment;

• a situation when a country is trying to achieve an export surplus, in order, perhaps, to pay off some overseas debts;

• a situation when a country tries to increase its rate of economic growth;

• an expansion of government spending financed by borrowing from the banking system;

• inflationary expectations.

• Cost-push inflation is an increase in the general price level resulting from an increase in the cost of production.

• Sources of cost-push inflation are:

- supply shocks, such as widespread and severe crop failures, the sharp increases in the price of oil instituted by a cartel, etc.;

- the momentum of inflationary expectations generated by previous demand-pull inflation.

• Nominal interest rate is the annual percentage amount of money that is earned on a sum loaned or disposed in a bank.

• Real interest rate is the nominal interest rate adjusted for inflation. If real interest rates are negative, lenders incur losses.

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