Chapter 3. Inflation, Unemployment and Poverty. Price Indices and Inflation. 1. What is inflation? Continuous increase in general price 2 . What is general (macro) price? (3.1) (3.2) [ Σ Wi = 1], Base year weight. P. t. =. PI. t. P. o. æ. ö. å. Q. P. ç. ÷. ). (.
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Chapter 3
Inflation,
Unemployment
and
Poverty
Price Indices and Inflation
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Multi  period
(c)(3.8)
(d)(3.9)
(e) ln Pt = a + bTt + ut (3.10)
t = 1,2,...,n
Employment  Unemployment
1. Relationship between employment and output (income)
2. Meaning of unemployment (U)
U = Population (P)  Employed people (E)
(3.12)
p varies with the state of the economy
u = (3.14)
Structural
Disguised (work sharing/spreading)
Seasonal
Underemployment (time/skill)
4. Natural rate of unemployment (un)
(speed limit)
= full employment
35% in developed countries
a. Total demand for labour = total
supply of labour
Not tenable, gaps in skills
e. u = voluntary unemployment
6. Measurement of unemployment
willingness
time
income
productivity
Priority rule: EUNot in workforce
197778 198788
Usual status 3.8%
Weekly status 4.8%
Daily status 8.2% 6.0%
NSS Survey: Daily basis Unemployment rate
(Percentages)
RuralUrban
Males FemalesMales Females
199394 5.6 5.6 6.7 10.5
19992000 7.2 6.8 7.2 9.8
* Puzzle: urich courtiers > upoor countries
7. Indian labour market
Poverty
I = 1 
3. Is absolute poverty so rampant?
4. Comprehensive measure of poverty
A K Sen
P = H { I + ( 1  I ) GP }
(Gp = Gini of poor)
Income inequality
G =
Min. : 0 (no inequality)
Max. : 1 (max. inequality)
Area of graph under OWXYZB (shaded part) Area of Δ OCB
3. Income inequality across countries
4. Pareto Law
Could redistribution remove poverty?