Week 3 — Measuring Inflation & Unemployment

Why this matters

A nurse checking a raise against prices and a city workforce office counting job seekers both read this week's two numbers.

In plain language

This week is about the two numbers behind most money headlines: how fast prices are rising, and how many people cannot find work. Economists track prices with the Consumer Price Index, or CPI (one number that tells you how much a fixed list of everyday purchases costs compared with a starting year). They turn that number into an inflation rate (how fast prices rose from one year to the next, in percent). They also count people, sorting adults into those with jobs, those looking for jobs, and those doing neither. From those counts come the unemployment rate (the share of job seekers and workers who have no job) and two other measures you will compute by hand.

• Already covered: Week 1, The Macro Perspective, taught you to see the economy as a whole and to read an idle point inside the frontier as a first look at unemployment. Week 2, Measuring Output, taught you to add up GDP and to strip price changes out with real GDP and the GDP deflator.
• This week: a second price index, the Consumer Price Index; the inflation rate; real versus nominal wages; and how the labor market is counted.
• How they connect: the real-versus-nominal split you used on GDP now applies to prices and paychecks, and the idle workers you met inside the frontier now get counted.
• Where we're going next: Week 4, Economic Growth & Productivity, uses the same percentage-change formula you learn here to measure how fast an economy grows.

Focus

How fast are prices rising, and who really counts as out of work?

By the end of this module, you should be able to:

• [ ] compute the CPI and an inflation rate, and tell a level from a rate
• [ ] estimate a real wage change from a raise and inflation
• [ ] compute the unemployment and participation rates
• [ ] sort joblessness as frictional, structural, or cyclical

To-do

Plan your week

1. Read Chapter 3 (40 minutes), then the lecture and slides.
2. Work the tutorial (60–90 minutes) and practice set (20 minutes).
3. Do the Model Workshop (90 minutes), discussion, and assignment.
4. Take the quiz.

This week's checkpoint: turn the CPI readings 108 and 113.4 into an inflation rate.

You've got this

Take it in order, and ask your instructor early.

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