Unemployment: - % of people who do not have jobs that are in the labor force
Unemployment rate: - # unemployed *100 # in labor force -Labor force: employed + unemployed -Standard # is 4-5%
Not Counted in the labor force: -Kids -Military personnel -People in mental institutions -Homemakers -Retired people -Full time students -Incarcerated people -Discouraged
4 types of unemployment 1) Frictional -Temporarily employed or in between jobs -Individuals are qualified workers with transferable skills but arent working -Individuals who are fired and looking for better jobs 2) Seasonal -Specific type of frictional unemployment which is due to the time of the year and nature of the job -These jobs will come back -Construction workers are an example 3) Structural -Changes in the structure of the labor force makes some skills obsolete -Workers do not have transferable skills and these jobs will never come back -Workers must learn new skills to get a job -The permanent loss of these jobs is called "creative destruction" 4) Cyclical -Downturns in the business cycle, which will result in a recession -As demand for goods and services falls, demand for labor falls and workers are fired -Restaurant owners fire workers after months of poor sales due to recessions
The national rate and Full Employment -Two of the three tyoes of unemployment are unavoidable ( frictional and structural) - Frictioanl (+) Structural (=) NRU (4-5%) - National rate of unemployment is NRU - Full employment = no cyclical unemployment
Okun's law: -When unemployment rises 1% above the NRU, GDP falls about 2%
Who are employed people? - Part-time workers - Leave of absence - Employed even if you work 1 hour a month
Inflation: -Increase or rise in price or general rising level of prices -Reduces the 'purchasing power' of money
Purchasing power:-Amount of goods and services that your money can buy
Three Cause of Inflation1) Printing too much money 2) Demand- Pull inflation -caused by an excess of Demand over output that pulls prices upward 3) Cost- Pull inflation -caused by a rise in per unit production costs due to increasing resource cost
Inflation rate: -Ideal inflation rate is 2- 3% -(Current Price index - Base year price index) * 100 Base year price index
Rule of 70 -Used to calculate the # of years it will take for the price level to double at any given rate of inflation -(70/annual rate of inflation)
Deflation: -General decline in the price level
Disinflation: -Occurs when the inflation rate itself declines
Nominal Interest rate -Unadjusted cost of borrowing or lending money
Real interest rate: -Cost of borrowing or lending money adjusted for inflation -Real = nominal interest rate - expected inflation
Unanticipated inflation (Hurt by inflation): -Lenders - people who lend money at fixed interest rates -People with fixed incomes -Savers
Anticipated inflation (Helped by inflation): -Borrowers- people who borrow money -A business where the price of the product increases faster than the price of resources
Cost of Living Adjustment (COLA): -Some workers have salaries that mirror inflation -They negotiate wages that rise with inflation
Nominal GDP: -Value of output produced in current year prices -Can increase from year to year, if either output or price increase -P * Q -In the base year, real & nominal GDP are equal -In years after the base year, nominal will exceed -Current Quantity * Current price
Real GDP: -Value of output produced in constant based year prices. -Adjusts for inflation -Only increases if output increases -P * Q -Measures economic growth -Current quantity * Base year Price
GDP Deflator: -Price index used to adjust from Nominal to Real GDP -(Nominal GDP/Real GDP) * 100 -In the base year, GDP deflator will always equal to 100 -For years after that, GDP deflator is greater than 100 -For years before the base year, GDP deflator is less than 100
Consumer Price Index (CPI) -Measures inflation by tracking changes in the price of a market basket of goods -(Price of market Basket in current year/Price of market basket in base year) *100
Budget: -Government purchases of goods/services (+) Government Transfer Payments (-) Government Tax and Fee Collection -Positive = Deficit -Negative = Surplus
National Income: 1. Compensation of employees (+) Rental income (+) Interest Income (+) Proprietor's Income (+) Corporate Profits 2. GDP (-) Indirect Business Taxes (-) Depreciation (-) Net Foreign Factor Payment
Disposable Income: - National income (-) Personal household taxes (+) Government transfer payments.
Net Domestic Product: -GDP (-) Depreciation
Net national Product: -GNP (-) Depreciation
Gross National Product: -GDP (+) Net Foreign Factor Payment
Depreciation: -Consumption of fixed capital -Wear & tear of capital equipment
Gross Domestic Product (GDP): -Total value of all final goods & services produced within a country's borders in a given year. -Includes all production or income earned within the U.S by U.S and foreign producers. -Excludes production outside of the U.S, even by Americans.
GDP formula: -C + Ig + G +Xn
C: consumption (67%)
Ig: Gross private Domestic Investment (18%) -Factor equipment maintenance -New Factor equipment -Construction of Housing -Unsold inventory of products built in a year
G: Government purchases (17%) -The government purchasing goods, services, weapons, etc.
Xn: Net exports (-2%) -Exports - Importsk
Included in GDP: -C, Ig, G, Xn
Excluded in GDP: 1)Intermediate goods -inputs used to produce final goods and services -avoid double or multiple counting 2) Used or Second hand goods -avoid double or multiple counting 3) Stocks and bounds -no production involved 4) Gifts or Transfer Payment -Private + public -Scholarships, social security, unemployment 5) Illegal Activities 6) Unreported Business activities -Tips 7) Non- Market Activity -Volunteer, babysitting
