Question

1. Define consumer price index and producer price index with at least one example of each.

2. Explain the difference between frictional unemployment and structural unemployment. Be sure to provide appropriate example of each.

3. what is financial intermediary? Name at least one financial intermediary and describe how they operate.

Answer 1

1) The Consumer Price Index, refers to a measurement of inflation computed by US government statisticians based on the price level from a fixed basket of goods and services that demonstrates the purchases of the average consumer. The producer price index (PPI) measures the domestic output of raw goods and services, and thus serves as a leading indicator of the consumer price index

Example CPI:

Year	Cost of basket for CPI goods	CPI
2000	5150	5150/5150*100
2011	4500	4500/5150*100
2012	5725	5725/5150*100

　

Example PPI:

Quantity - 2017	Quantity - 2018	Price - 2017	Price - 2018
20	18	10	12
40	43	15	17
25	26	20	25

PPI = (20*12 + 40*17 + 25*25) / (20*10 + 40*15 + 25*20) * 100 = 118.85

2) Explain the difference between frictional unemployment and structural unemployment. Be sure to provide appropriate example of each

Frictional unemployment occurs when few workers are temporarily out of work while changing jobs. It is temporary phenomenon and occurs due to many reasons. The lockouts and strikes may result in the suspension of work, and due to it exist some frictional unemployment for the time being. To a certain extent, frictional unemployment is also caused due to the imperfect mobility of labour. Factors inhibiting the geographical or occupational movement of unemployed workers into vacant jobs hence results to frictional unemployment in the economy. Example: Jack just moced with her husband to Portland, Oregon; and is looking for a job as a doctor. Since it takes time for workers to search for the jobs that best suit their tastes and skills thus Jack is frictional unemployed.

The structural unemployment occurs due to decline in demand for production in a specific industry, and consequent disinvestment and decline in its manpower needs. It occurs from industrial reorganization, mainly due to technological change, rather than any fluctuations in demand or supply. Thus is caused by a fall in demand for production in a specific industry, and consequently disinvestment and decrease in its manpower requirements. This type of unemployment is structural unemployment, because the infrastructure of the transportation system has altered altogether. For example: Jack became a music instructor during an upswing in interest in music. However the fad was passed and he's unable to find enough clients to maintain in business. Now is thinking about strating a yoga studio instead thus is structurally unemployed because number of jobs available in some labor markets is insufficient to provide a job for all who wants one.