Unit 2: Unemployment 2/9/17

Unemployment: % of people in the labor force who want a job but are not working.

Labor Force: Consists of unemployed and the employed.

Employed:

• Work at least 1 hour a month
• Temporarily absent from work
• Part time workers

Not in the Labor Force:

• Kids
• Full time students
• People in mental institutions
• People who are incarcerated
• Retirees
• Stay at home parents
• Military personnel
• Discouraged

Unemployment Rate Formula:

Number of unemployed      X 100

     Total Labor Force

Standard unemployment = 4-5%

Types of unemployment:

• Frictional Unemployment: Temporarily unemployed. Qualified w/transferable skills but they aren't working
• Seasonal Unemployment: This is a specific type of frictional unemployment, which is due to time of year and the nature of the job. These jobs will come back.
• Structural Unemployment: Changes in the structure of the labor force make some skills obsolete. Workers DON'T have transferable skills & these jobs will never come back. Workers must learn new skills. The permanent loss of these jobs is called "creative destruction".
• Cyclical Unemployment: Results from economic downturns (recession). As demand for goods & services falls demand for labor falls and workers are fired.  

• ⅔ of unemployment are unavoidable: Frictional, Structural
• Together they make the NRU (natural rate of unemployment)
• We are at full employment if we only have 4–5% unemployment(NRU)
• Full employment means NO cynical unemployment.
• Okun’s law: When unemployment rises 1% above natural rate, GDP falls by about 2%

LINK:https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=video&cd=1&cad=rja&uact=8&ved=0ahUKEwiwmd676o3SAhVs_4MKHTAMBikQtwIIGjAA&url=http%3A%2F%2Fstudy.com%2Facademy%2Flesson%2Fthree-types-of-unemployment-cyclical-frictional-structural.html&usg=AFQjCNEPJeHeusegSFwEuEy49hMYH8FPDQ&sig2=OZ0JawBm4pIgtHMXwan9rQ&bvm=bv.146786187,d.amc

Unit 2: Inflation 2/6/17

Inflation: General rising level of prices

- Reduces Purchasing Power of money

Purchasing Power: The amount of goods & services that money buys

Deflation: A decline in the general price level

Disinflation: Occurs when the inflation rate itself declines

Three Causes of Inflation:

1) Printing too much money
2) Demand-Pull Inflation:
"Too many dollars chasing two few goods"

• Demand pulls up prices!
• Demand increases but supply stays the same. The result is a shortage driving up prices
• An overheated economy with excessive spending but same amount of goods.

3) Cost-Push Inflation

• Higher production costs increases prices

Inflation Formula:

Current Year Price Index - Base Year Price Index     X 100

              Base Year Price Index

Hurt by Inflation:

• Lenders- people who lend money (at fixed interest rates)
• People with fixed incomes
• Savers

Helped by Inflation:

• Borrowers- people who borrower money
• A business where the price of the product increases faster than the price of resources

Rule of 70:

Used to calculate the number of years it will take for the price level to double at any given rate of inflation.

Formula =              70                   

                Annual Rate of Inflation

Real Interest Rate: Deals with the amount of money that is borrowed. Adjusted for inflation.

 Real= Nominal Interest Rate - Expected Inflation

Nominal Interest Rate: The percentage increases in money that the borrower pays back to the leader not adjusting for inflation.

Ideal Interest Rate: 2 to 3%

Unit 2: Real GDP & Nominal GDP 2/3/17

Nominal GDP: The value of output produced in current year prices.
-Can increase from year to year if either output or prices increase.
Formula: Price X Quantity <= Output

Real GDP: The value of output produced in constant based year prices. Adjusted for inflation.
-Can increase from year to year if only output increases.
Formula: Price X Quantity

• In the base year the current price will always be equal to the constant price (nominal & real GDP will be the same)
• In years after the base year, Nominal GDP will exceed Real GDP 
• In the years before the base year, Real GDP will exceed Nominal GDP

GDP Deflator: A price index used to adjust from Nominal to Real GDP

Formula: Nominal GDP        X 100

                Real GDP

• In the base year GDP Deflator will always equal 100
• Years after the base year, GDP Deflator will be greater than 100
• Years before the base year, GDP Deflator will be less than 100

Consumer Price Index (CPI): Measures inflation by tracking changes in the price of a market basket of goods.

Formula: Price of Market Basket in current year   X 100

                Price of Market Basket in base year

Unit 2: GDP Cont. 1/31/17

Expenditure Approach to GDP:
C + Ig + G + Xn-(Net Exports-Imports)

Income Approach to GDP:

W- wages (compensation of employees/salaries)
+
R- rents (income received by the households & business that supply properly resources)
+
I- interest (money paid by private businesses to the suppliers of  loans used to purchase capital)
+
P- profits (owning your own business)
+
Statistical Adjustments (Dividends, Corp income tax, Net foreign)

Trade: exports - imports
Budget= Government purchases of goods & services + Government Transfer Payments - Government Tax & Fee Collection


National Income:
1) Compensation of Employees + Rental Income + Interest Income + Proprietors Income + Corporate Profits
2) GDP - Indirect Business Taxes - Depreciation - Net Foreign Factor Payment


Disposable Personal Income: National Income - Personal Household Taxes + Government Transfer Payments

Net Domestic Product:
GDP - Depreciation

Net National Product:
GNP - Depreciation

Depreciation (Consumption of Fixed Capital): The loss of value in capital equipment due to normal wear & tear.

Gross Investment:
Net Investment + Depreciation

Unit 2: GDP & GNP 1/27/17

GDP

GDP (Gross Domestic Product): Total value of all final goods & services produced w/in a country's borders in a given year.

• Includes all production or income earned w/in the US by US and foreign producers.
• Excludes production outside of the US, 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%)

Xn: Net Exports (Exports-Imports) (-2%)

Included in GDP:

• C
• Ig
• G
• Xn

Excluded in GDP:

• Intermediate goods -Avoid double or multiple counting
• Used or secondhand- Avoid double or multiple counting
• Stocks & Bonds- No production
• Unreported business activity (Ex: Tips)
• Gifts/Transfer Payments(Public/Private)- Ex: Scholarship, social security, unemployment
• Illegal activities
• Non-market activities- Ex: Volunteering, Babysitting

GNP

GNP (Gross National Product): Total value of all final goods & services produced by Americans in a given year.

• Includes production or income earned by Americans anywhere in the world.
• Excludes production by non-Americans, even in the US.

GNP Formula:

GDP + Net Foreign Factor Payment

GNP LINK:http://www.auburn.edu/~johnspm/gloss/GNP

Unit 2: Circular Flow 1/26/17

Circular Flow model: Represents the transactions in an economy by flows around a circle.

Household: A person or group of people that share an income.

Business/Firm: An organization that produces goods & services for sale.

Unit 1:Excess Demand & Excess Supply 1/20/17

Excess Demand:

Quantity demanded is greater than quantity supply (QD>QS), shortage.

Shortage: Consumers cant get the quantities of items they desire.
Price Ceiling: Occurs when the government put a legal limit on how high the price of a product can be.
Ex: Rent Control

Equilibrium:

The point at which the supply curve and the demand curve intersect.

Excess Supply:

Quantity supply is greater than quantity demanded (QS>QD), creates a surplus.

Surplus: producers have inventories they cannot get rid of.

Price Floor: Lowest legal price a commodity can be sold at. Used by the government to prevent prices from becoming too low.

Ex: minimum wage

Business Cycles:

1. Expansion
2. Peak
3. Contraction/Recession
4. Trough

• 1 cycle is from trough to trough
• Average cycle is 5 to 7 yrs
• Recessions last about 14 months
• Peaks & troughs are meaningless because we never know we are in one until it's over.
• Trough means the end of recession
• If a recession loses more than 10% of real GDP, then it's a depression.