Practice: AP Macro unemployment and inflation

What is unemployment?

The state of being jobless while actively seeking work.

Define inflation.

The rate at which the general level of prices for goods and services rises.

True or false: CPI measures inflation.

True, because it tracks changes in the price level of a basket of consumer goods.

Difference between frictional and structural unemployment

Frictional: short-term, due to job transition. Structural: due to mismatches in skills.

Fill in the blank: The natural rate of unemployment includes _____ and structural unemployment.

frictional

What does the unemployment rate measure?

The percentage of the labor force that is unemployed.

Which type of inflation is caused by demand exceeding supply?

Demand-pull inflation.

True or false: Inflation is always detrimental to the economy.

False, because moderate inflation can stimulate spending.

Define stagflation.

A situation of stagnant economic growth combined with inflation.

What is the formula for the unemployment rate?

Unemployment Rate = (Unemployed / Labor Force) x 100%

Question: What is hyperinflation?

An extremely high and typically accelerating inflation rate.

Which is NOT a type of unemployment?

Involuntary unemployment.

What does CPI stand for?

Consumer Price Index.

Define cyclical unemployment.

Unemployment linked to the economic cycle, occurring during downturns.

True or false: Deflation is a decrease in the general price level.

True, because it reflects falling prices over time.

What is the difference between nominal and real interest rates?

Nominal: unadjusted for inflation. Real: adjusted for inflation.