5. Shrinking U.S. Labor Force Keeps

Unemployment Rate From Rising

An exodus of discouraged workers from the job

market kept the unemployment rate from climbing

above 10 percent. Had the labor force not

decreased by 661,000, the unemployment rate

would have been 10.4 percent. The number of

discouraged workers rose to 929,000 last month.

Source: Bloomberg, January 9, 2010

What is a discouraged worker? Explain how an

increase in discouraged workers influences the

official unemployment rate and U-4.

19. Inflation Getting "Uglier and Uglier"

The Labor Department reported that the CPI

rose 4.2% through the 12 months ending in May

and 0.6% in May. Energy costs rose 4.4% in

May, and surged 17.4% over the 12 months ending

in May; transportation costs increased 2% in

May, and jumped 8.1% over the 12 months ending

in May. The price of food increased 0.3% in

May, and jumped 5.1% during the 12 months

ending in May. The price of milk increased

10.2% over the 12 months. The price of clothing

fell 0.2% in May, and decreased 0.4% over the

12 months. The core CPI rose 0.2% in May and

2.3% during the 12 months ending in May.

Source: CNN, June 13, 2008

a. Which components of the CPI basket experienced

price increases (i) faster than the average

and (ii) slower than the average?

b. Distinguish between the CPI and the core

CPI. Why might the core CPI be a useful

measurement and why might it be misleading?