Unit Two: Unemplyment

February 3, 2015

Unemployment: Percentage of people who dont have jobs but are in the labor force.

Labor Force: Number if people in a country that are classified as either employed or unemployed.

Unemployment rate:

# of unemployed 

*divided by

# of emplpoyed + # of  unemployed

*Multiplied by 100

Not in Labor Force: 

-Kids

-Retired People

- Full time student

- Military Personnel

- mentally insane

- Stay at home parent

- Discouraged Worker

- Incarcerated

Full employment - Occurs when there is no cyclical unemployment present in the economy.

Also known as Natural rate of unemployment. (NRU) 

4-5% is out desired goal. 

Why is Unemployment good?

-Because there is less pressure to raise wages and more workers are available for future expansions.

Why Is Unemployment bad? 

-Not enough consumption (GDP) 

- Too much poverty

- Too much Gov't assistant needed

Okun's Law: For every one percent of unemployment above the NRU causes a two percent decline in real GDP.

Frictional Unemployment: People between a job becasue of new opportunities, lifestyle, choices, and educational level.

Seasonal Unemployment: Waiting for the right season to conduct your trade.

Cyclical Unemployment: Downturn in the business cycle. Bad for Society and individual.

Structural Unemployment: Lack of skill, decline in an industry, and technology changes. 

Unit Two: Inflation

February 2, 2015

Inflation: Rise in general level of prices.
Standard is 2-3 years

Inflation rate: Measures the percentage increase in the price level over time. it is a key indicator of the economy's health.

Deflation: Decline in general price level.

Dis-inflation: Occurs when inflation tare itself declines.

Consumer price index (CPI): measures inflation by tracking the yearly price of a fixed basket of consumer goods and services. In addition CPI indicates changes in the cost of living and price level.

5 Ways to solve inflation...

1. Finding inflation rate using market basket data

Current year market basket value

-

Base year market basket value

*Divided by

Base year market value 

*multiplied by

100

2. Find inflation rate using price index

current year price index

-

base year price index

*divided by 

base year price index

*multiplied by 100

3. Estimating inflation using 70: Rule 70 is used to calculate the number of years it will take the price level to double at any given rate of inflation.

Years needed to double inflation ... 

70

*divided by

Annual inflation rate

4. Determining real wages

Nominal wages

*divided by

Price level 

*multiplied by 100

5. Finding real interest rate

nominal interest 

-

inflation premium

Causes of inflation

1. Demand pull inflation- caused by an excess of demand over output that pulls prices upwards. 

2. Cost push inflation- caused by a rise in per unit production cost due to increasing resource casue. 

Effects of inflation

-Anticipated: already saw it coming.

-Unanticipated: Not Expecting

INFLATION

Helped by it...

-Borrowers - will be repaying with cheaper dollars than those that were loaned out.

-Fixed contract

Hurt by it...

-Fixed income

-Savors

-Lenders and Creditors

Unit Two: Nominal GDP and Real GDP

January 29, 2015

Nominal GDP- Value of output produced in current prices.

* Price multiplied by Quantity

- Can increase from year to year if either output or price increase.

Real GDP- Value of output produced in constant or base year prices. 

* Base price multiplied by quantity

-Can increase from year to year only if output increases. 

Price index:measures inflation by tracking changed in the price of a market basket of goods compared with the base years. 

Price of market basket of goods

*divided by

Base price of market baskets 

*multiplied by

100

GDP Deflator: is a price index used to adjust from nominal to real GDP. 

-For years after the base years the GDP deflator is greater than 100.

-For yeats before the base year the GDP deflator is less than 100. 

Nominal GDP

*divided by

Real GDP

*multiplied by 

100

Inflation Rate: 

New GDP deflator 

-

Old GDP deflator

*Divided by

Old GDP Deflator

*nultiplied by 

100

Unit Two: Find GDP and much more!

January 28, 2015

To find GDP add up market value on...

Expenditure Approach: (Most popular and Reliable)

C + IG + G + Xn = GDP

Income Approach: Add up all of the income earned by household and firms in a single year. (Unreliable)

GDP = W + R + I + P + Statistical Adjustments. 

W: wages

R: rents

I: interest

P: profit

SA (Statistical Adjustment): Whatever is left to equal the Expenditure approach when added up wages, rents, interest, and profits. 

Here are some formulas!

1. Budget: 

Government purchases of goods and services

+

Government transfer payments

-

Government tax and fee collection

If your number is Positive it is a deficit.

If your number is Negative it is a Surplus. 

2. Trade: 

Exports

-

Imports

If your number is Positive it is a Surplus.

If your number is Negative it is a Deficit. 

3. GNP: (Gross National Product)

GDP

-

Net foreign factor payments

4. NNP: (Net National Product)

GNP

-

Depreciation

5. NDP: (Net Domestic Product)

GDP

-

Depreciation

6. National Income:

Opt One:

GDP

-

Indirect business taxes

-

Depreciation

-

Net foreign factor payments

Opt Two:

Compensation of employees

+

Rental income

+

Interest income

+

Proprietors income

+

Corporate profit.

7. Disposable Personal Income:

Nat'l income

-

Personal household taxes

+

Gov't transfer payments

Unit Two GDP, GNP and much more!

     January 27, 2015

GDP - Gross Domestic Product

   The total dollar value of all goods and services produced within a countries borders within a given year.

GNP - Gross National Product

   The total value of all final goods and services produces by Americans in a year. 

Whats included in GDP? 

C + Ig + G + Xn = GDP

C - consumption

     67 % of the economy. 

     Final goods and Services.

Ig - Gross Private Domestic Investment

  1. Factor equipment maintenance.

  2. New factory equipment.

  3. Construction of housing.

  4. Unsold inventory of products built in a year.

G - Government spending

-Military Spending.

Xn - Net export

     Exports - Imports

Whats not included in GDP?

1. Non-market activities

-Volunteering.

-Family Work.

-Selling Cannabis. 

2. Intermediate goods

-Goods and services that are purchased for resale.

-Further processing and manufacturing.

3. Used/Second hand goods.

4. Final Transaction 

-Stocks. 

-Bonds.

-Real estate. 

5. Gifts or transfer payments.

a) Private - Produce no output, simply transfer funds. from one private individual to another. EX: Scholarships.

b) Public - Recipients contribute nothing to the net production. EX: Welfare Payments and Social Security. 

Here are some examples!

1. You buy a Christmas toy at Toys-R-Us. 

     Yes counted in GDP - Because of  "C" 

2. You spend a week painting the family home (your hours of effort)  

     Not counted in GDP - Because "non- market activity

3. The Government buys 100 new helicopters for use overseas. 

     Yes counted in GDP - Because of  "G"

Unit One: Circular flow Chart.

January 23, 2015