Question

Topic 1. What is "natural" about natural unemployment, discuss.   

Topic 2. Discuss why the CPI is important.   

Answer 1

1. Full employment, which can be achieved when the American economy performs well. Nonetheless, the term full employment is a misnomer as there are always people seeking employment, including college graduates or those displaced by advances in technology. To put it another way, there is always some labor movement throughout the country. Labor movement into and out of jobs, whether voluntary or not, reflects natural unemployment.

The normal unemployment rate is a mixture of frictional, systemic, and surplus joblessness. Even a healthy economy will have this level of unemployment because workers often come and go and seek better jobs. This jobless state is the normal rate of unemployment, before they find the new job.

Any unemployment that is not considered normal is frequently referred to as cyclical, structural or politically based unemployment. Exogenous factors can cause an increase in the natural unemployment rate; for example, if people lack the skills necessary to find full-time work, a steep recession may increase the natural unemployment rate. Sometimes the economists call it "hysteresis."

2. The CPI is significant as it is one of the chief inflationary change indicators. The Bureau of Labor Statistics (BLS) measures the CPI by evaluating and analysing the quality by considering a regular basket of generic consumer goods. By comparing this year's price to last year's price, the BLS will calculate how much more money you need to buy the same stuff this year compared to last year. You can translate the difference in the amount of money you need into a percentage that is the rate of inflation.

Policymakers in the Federal Reserve measure changes in inflation by tracking different price indices. A price index calculates price changes for a collection of goods and services. The Fed considers several price indexes as different indexes measure different products and services, as well as different indexes. Thus, different indexes will send various inflation signals.