Chapter 28

This chapter was about unemployment. The unemployment rate is the percentage of those who would like to work and are actively searching, but cannot get jobs. However, the unemployment rate is an imperfect measure of joblessness. This is because some people who call themselves unemployed may actually not want to work, and some people who would like to work have left the labor force after an unsuccessful search and therefore are not counted as unemployed. Most unemployed find work within a short period of time. There are a couple reasons for unemployment. It takes time for workers to find job that best suit their tastes and skills. The economy will always have some unemployment due to minimum wage laws because they raise the amount of labor supplied and decrease the demand for labor. This creates a surplus of labor. Also, unions also increase the wages above the equilibrium, creating a surplus. This chapter introduces the idea of efficiency wages. Based on this theory, firms find it profitable to pay wages above the equilibrium level. High wages improve worker health, lower worker turnover, raise worker quality, and increase worker effort.

Chapter 27

Chapter 27 gets into a new topic of finance. It deals with the general idea of finance and how values of money change over time. A present value of money could be worth more in the future, depending on interest rates and the timetable for the money. Chapter 27 also deals with financial risk. We talked a little bit about risk last Chapter, but this goes into more depth. There is more risks in certain financial endeavors than others, and some individuals tend to take more risk than others.

There are ways to avoid risk, but primarily through insurance, accepting lower returns, and diversification. In class, we talked about how insurance is a good way to be prepared if something unexpected happens to you, your home, or your car. Also last chapter, we discussed how diversification through stocks and bonds is a good way to reduce risk, such as when someone has a mutual fund. Also, accepting lower returns shows a longer time investment, thus less risk.

Chapter 24

Chapter 24 is about measuring the cost of living. It deals with inflation and inflation rate, something we touched on a little bit in last chapter. Inflation rate is a percentage change in prices from year to year. Then, Consumer Price index measures the costs of goods and services in the economy.

These two rates are generally good measures of a cost of living. Inflation deals with rise in prices, and price index deals with the total cost.