February 9, 2017

Unemployment

Unemployment Rate: The percent of people in the labor force who want a job but are not working 

Labor Force: The number of people in a country that are classified as either employed or unemployed

Employed:

• Anybody that works at least one hour per month
• Anyone considered to be temporarily absent from work
• Part Time Workers

Not in the Labor Force:

• Kids
• Full Time Students 
• People in Mental Institutions
• Military Personnel 
• Stay at home mom's/dad's 
• Retirees 
• Incarcerated (@ least 6 months)
• Discouraged Workers (Mentally/Physically Broken Down ----> Stopped looking for job; Hopeless)

Unemployment Rate: 

# of Unemployed / # in Labor Force 

(Labor Force= # of unemployed + # of employed)

Standard Unemployment Rate: 4-5%

• > 5% = Possible Recession
• < 4% = :D

4 Types of Unemployment

1. Frictional Unemployment 

• "Temporarily Unemployed" or being between jobs

• Individual are qualified workers with transferable skills but they aren't working
• EX: New graduate looking for a job

2. Seasonal Unemployment

• There is a specific type of frictional unemployment which is due to the time of the year and nature of the job
• These jobs will come back
• EX: Santa Clause/Easter Bunny

3. Structural Unemployment 

• Changes in the structure of the labor force make 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

• Permanent Loss= Creative Destruction

• EX: Decline of one industry and the rise of another

4. Cyclical Unemployment 

• Unemployment that results from economic downturns (recessions)

• As demand for goods and services fall, demand for labor falls and workers are fired

Natural Rate of Unemployment (NRU)

Frictional + Structural 

Full employment means NO cyclical unemployment!

Okun's Law: When unemployment rises 1% above the natural rate, GDP falls by about 2%

February 6, 2017

Inflation

Inflation: A general rising in the level of prices

• Reduces the "purchasing power" of money

Causes of Inflation:

1. Printing too much money (The Quantity Theory)
2. Demand-Pull Inflation ("Too many dollars chasing too few goods")
• Caused by excess of demand over output that pulls prices outward
3. Cost-Push Inflation (Higher production costs increase prices)

• Gas prices go up during Hurricane Katrina

Standard Inflation Rate: 2-3%

Inflation Rate Formula:

Current Year Price Index * Base Year Price Index / Base Year Price Index * 100

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

70 / Annual Inflation Rate

Deflation: A general decline in the price level

Disinflation: Occurs when the inflation rate declines 

Real Interest Rates: The percentage increase in purchasing power that a borrower pays to the lender (Adjusted for inflation)

• Nominal Interest Rate- Expected Inflation 

Nominal Interest Rate: The percentage increase in money that the borrower pays back to the lender (NOT adjusting for inflation)

Unanticipated Inflation:

• Hurt by Inflation
• Lenders: People who lend money (at fixed interest rates)

• People with fixed income (Social Security ----> Senior Citizens)

• Savers

• Helped by Inflation

• Borrowers: People who borrow money

• A business where the price of the producer increases faster than the price of resources

February 3, 2017

Real and Nominal GDP

Nominal GDP: The value of output produced in current prices; can increase from year to year if either output or prices increase.

• Current Prices

• P * Q

Real GDP: The value of output produced in constant base year prices; Adjusted for inflation; Can increase from year to year only if output increases

• P * Q

• Accurate Sample of Economic Growth

• Only in the base year is real GDP = Nominal GDP

• Years AFTER the base year, nominal GDP will exceed real GDP

• Years BEFORE the base year, real GDP will exceed nominal GDP 

BASE YEAR IS THE EARLIEST YEAR IF NOT GIVEN!!!

Example:

CARS (2012)

Quantity: 10

Price: $15,000

CARS (2015)

Quantity: 20

Price: $16,000

TRUCKS (2012)

Quantity: 10

Price: $20,000

TRUCKS (2015)

Quantity: 20

Price: $21,000

Nominal GDP for 2012:

Cars: 10 * 15,000 = $150,000

Trucks: 10 * 20,000 = $200,000

TOTAL: $350,000

Nominal GDP for 2013:

Cars: 20 * 16,000 = $320,000

Trucks: 20 * 21,000 = $420,000

TOTAL: $740,000

Real GDP:

Cars: 20 * 15,000

Trucks: 20 * 20,000

TOTAL: $700,000

GDP Deflator: A price index that is used to adjust from nominal to real GDP

Nominal GDP/Real GDP * 100

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

• Market Basket of Goods: Cars, Trucks, Boats

Price of Market Basket in Current Year/Price of Market Basket in Base Year * 100

February 1, 2017

Calculating the GDP: Expenditures and Income Approach

Net Domestic Product: 

GDP - Depreciation 

Net National Product GNP: 

GNP - Depreciation 

Gross Investment:

Net Investment + Depreciation

GNP:

GDP + Net Foreign Factor Payment 

Depreciation: The lost of value of capital equipment due to normal wear and tear

January 31, 2017

Calculating the GDP: Expenditures and Income Approach

Expenditure Approach: 

C + Ig + G + Xn (export-imports)

Income Approach: 

W- Wages (Compensation of Employees/Salaries)
+
R- Rent
+
I- Interest (Money you have to borrow/Money in bank earning interest)
+
P- Profits
+
Statistical Adjustment 

Budget Surplus/Deficit: 

Government Purchases of Goods and Services + Government Transfer Payments - Government Tax and Fee Collections 

+ = Deficit

- = Surplus 

Trade Surplus/Deficit:

Exports - Imports

+ = Surplus- = Deficit  

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 

January 30, 2017

Stocks and Bonds/Transfer Payments

• Stocks and Bonds: Purely Financial Transactions
• Excluded because nothing is being produced

• Transfer Payments: Money government is transferred to a time where you're going to use it.
• Excluded because nothing is being produced
• Ex: Unemployment, Social Security 

January 27, 2017

Gross Domestic Product & Gross National Product 

GDP (Gross Domestic Product): The total value of all final goods and services produced within a country's borders in a given year.

• Includes all production or income earned within the US by US and foreign producers. It excludes production outside of the US, even by Americans. 

GNP (Gross National Product): The total value of all goods and services produced by Americans in a given year. 

• Includes production or income earned by Americans anywhere in the world. Excludes production of non-Americans even in the United States. 

                            GDP Formula: C + Ig + G + Xn (exports-imports)

Included in GDP:

• C= Consumption
• Purchase of final goods and services
• 67% of the economy
• Ig= Gross Private Domestic Investment
• Reconstruction of New Housing
• New Factory Equipment
• Factory Equipment Maintenance 
• Unsold Inventory of Products Built in a Year
• 17% of the economy
• G= Government Spending 
• School Busses
• Highway
• Guns
• 18% of the economy
• Xn= Net Exports
• EXPORTS - IMPORTS
• -2% of the economy because majority is imports

NOT Included in GDP:

• Intermediate Goods (Inputs) 
• Ex: Lettuce, Cheese in Sandwich 
• Trying to Avoid Double or Multiple Counting 
• Used or Second Hand Goods 
• Trying to Avoid Double or Multiple Counting 
• Unreported Business Activities
• Ex: Tips
• Stocks and Bonds
• Non-Market Activity
• Ex: Volunteer, Babysitting Without Pay, Work for Self
• Illegal Activity
• Ex: Underground or Black Market 
• Gifts or Transfer Payments
• Ex: Scholarships, Social Security, Unemployment, Giving Someone Money 

January 25, 2017

Circular Flow 

Circular Flow: Represents the transactions within an economy by flows around the circle

• Household: A person or a group of people who share their income
• Firms or Business: An organization that produces goods and services for sale