Kuliah pengantar ekonomika ITB

1. PL2151 PENGANTAR EKONOMIKA
LECTURERS : KNP, SHR.
INFLATION AND
UNEMPLOYMENT

2. Consumer Price Index (CPI)
 CPI measures the cost of purchasing a fixed
basket of goods and services in any periods
relative to the cost of the same basket of goods
and services in a base year
 CPI = cost of fixed basket of goods and services in
current year
cost of fixed basket of goods and services in
base year

3. Inflation
 Inflation : the annual percentage rate of change in
the price level, as measured for example, by the
CPI
 Inflation rate = CPIt – CPIt-1 x 100%
CPIt-1
 Core Inflation : The rate of increase of all prices
except volatile price (food)
 Hyperinflation : a situation in which the inflation
rate is extremely high
 Deflation : a situation in which the price of most
goods and services are falling over time so that
inflation is negative

4. The Costs of Inflation
 “Noise” in the price system, which occurs when
general inflation makes it difficult for market
participants to interpret the information conveyed
by prices
 Distortion of the tax system
 “Shoe-Leather” cost, cost of economizing on cash
by making more frequent trips to the bank
 Unexpected redistributions of wealth
 Interference with long-term planning, because
people find it difficult to forecast prices over long
periods

5. Unemployment
Each person who is 16 years or older (Indonesia: age>15
years) is placed in one of three categories:
1. Employed. A person is employed if he or she worked
full time or part time (even for a few hours) during the
past week or is on vacation or sick leave from a
regular job
2. Unemployed . A person is unemployed if he or she did
not work during the preceding week but made some
effort to find work in the past four weeks
3. Not in the labor force. A person is considered to the out
of the labor force if he or she did not work in the past
week and did not look for work in the past four weeks.
(student, unpaid homemakers, retirees, disabilities)
 Labor force : the total number of employed and
unemployed people

6. Unemployment Rate
 Unemployment rate = Number of unemployed
x 100%
Labor force
 Labor force participation rate = Labor force
x 100%
Adult population

7. Types of unemployment
 Frictional unemployment : the short term
unemployment associated with the process of
matching workers and jobs
 Structural unemployment : the long term and
chronic unemployment that exists even when the
economy is producing at the normal rate
 Cyclical unemployment : the extra unemployment
that occurs during periods of recession

8. Impediment to full employment
 Minimum wage laws
 Labor union
 Unemployment insurance
 Other government regulation

9. Exercise : Problem 1
 Government survey takers determine that typical family
expenditure each month designated as the base year
are as follows: 20 pizza at $10 each; Rent of apartment,
$600; Gasoline and car maintenance, $100; Phone
service, $50.
In the year following the base year, the survey takers
determine that pizzas have risen to $11 each,
apartment rent $640, gasoline and maintenance have
risen to $120, and phone services has dropped in price
to $40
a. Find the CPI in the subsequent year and the rate of
inflation between the base year and the subsequent
year.
b. The family’s nominal income rose by 5% between the
base year and the subsequent year. Are they worse
off or better off of what their income is able to buy?