Unit 2- Topic 4: Unemployment

Unemployment-

• Failure to use available resources particular labor to produce desired goods and services.

Population-

•  Number of people in a country

Labor Force-

• Number of people in a country that are classified as either, employed or unemployed.

• Employed- people who are 16 year of age or older and they have a job. must work one hour every two week to be considered as employed.
• Unemployed- people who are 16 years of age or older that don't have a job but actively searched for a job in the past two weeks.

Not in the Labor Force-

• Kids
• Full Time Students/ College Student
• Institutionalized (mental institution)
•  People in Jail or Prison (state intimates do not get paid)
• Disabled 
• Retirees
• Military Personals
• Stay at home moms and dads 
• Discouraged Workers

Total Labor Force- #of unemployed+#of employed
Unemployment Rate= # of unemployed/ Total Labor Force (# of unemployed + employed)

Types of Unemployment

Frictional-

• Temporarily unemployed on “in -between” jobs 
• Qualified works with transferable skills 
• EX. High school/ college graduate, people looking for a better job. 

Seasonal-

• Due to the time of the year 
• EX. Lifeguards, construction workers, school bus drivers, mall Santa’s, Easter bunnies 

Structural-

• Changes in the structure of the labor force makes some skills obsolete
• Workers don’t have transferable skills
• Jobs will never come back
• Creative destruction- jobs are created or destroyed 
• EX. VCR repairmen, typewriter repairmen, works in NASA           

Cyclical-

• Demand for goods and services falls, demand for labor falls and workers are laid off. 
• Results from economic downturns = recession
• Known as the worst kind of unemployment.
• If cyclical unemployment is present we do not have full employment. 

Full Employment-

• 4-5% unemployment (There is no Cyclical Unemployment)
• NRU= frictional+structural unemployment

NRU-

• Natural Rate of Unemployment (Frictional + Structual Unemployment = NRU)

Okun’s Law-

• When unemployment increases by 1% above the natural rate of Unemployment then real GDP will fall by 2%. EX. natural rate: 5.5% real: 6.5%, 6.5-5.5=1 x 2= 2

Rule of 70-

• The number of years that is required for GDP to double.
• EX. If the annual inflation rate is 2% how many years will it take for GDP to double? 70/2 = 35 years 

Unit 2: Topic 3- Inflation

Inflation: reduces the purchasing power of money

• When inflation occurs, each dollar of income, will buy fewer goods than before.
• Inflation Rate: 2-3%

3 Causes of inflation

1. Hyper- inflation:The government prints too much money. 
2. Demand-Pull Inflation: (demand pulls up prices): too many dollars chasing too few goods. demand pulls prices up. 
3. Cost-Push Inflation: higher production costs increases prices 

Unanticipated Inflation- Unexpected change in price

People hurt my inflation

• lenders/ predators (borrow money at fixed rates)
• people on a fixed income; receiving social security or retirement. (ex. senior citizens)
• savers
• creditors

People helped by inflation

• borrowers/ debtor: signed contract, conditions cannot change.
• flexible income
• a business where the price of a product increases faster than the price of resources.

Nominal Interest Rate vs. Real Interest Rate

Nominal Interest Rate: adjusted cost of borrowing or lending out money.

Real Interest Rate: the cost of borrowing or lending money that is adjusted for inflation.

Nominal - inflation = 

Unit 2: Topic 2- Gross Domestic Product (GDP)

Gross Domestic Product (GDP)- Total market value of all final goods and services produced within a countries border within a given year.

Gross National Product (GNP)- A measure of what a citizens produce whether they produce these items within it's borders.

What's the difference?

GDP- total market value
final goods and services
within a year
within a countries border

GNP- (ex.) working in Dubai, an american citizen would not be on Dubai's GDP.

What's not included in GDP?

1. Used or "second-hand" goods- trying to avoid double or multiple accounting. (If you buy a a 2005 car in 2018 then only the value of 2005 is valid)
2. Intermediate Goods- these are goods that require further processing before they are ready for final use. (a big mac- the bun, the cheese, the lettuce are all intermediate goods. Things put together to make a product.)
3. Gifts (transfer payment)- public or private. (public- welfare social security, private- scholarship) transfer of money. No output produced. The recipients do not contribute to current production. NO PRODUCTION
4. Unreported Business Activity ("tips")- If you get a tip and don't clock it then no proof to effect the GDP.
5. Illegal Activities- Drugs, prostitution, human trafficking. 
6. Stocks and Bonds- not include in GDP, purely transaction. no output being produced.
7. Non Market Activity- volunteer and family work. (babysitting not an official job)

FORMULA FOR GDP

(Expenditures Approach) GDP= C+Ig+G+Xn
C- Personal Consumption Expenditures- (67% of economy) purchase of finished goods and services. does not include houses. (ex. going to the mall and buying a purse)
I- Gross Private Domestic Investment- new factory equipment, construction of housing, unsold inventory of products built in a year, factory equipment maintenance.
G- Government Spending- Government purchases of goods and services.
Xn- Net Export- (Export- Imports) Export- make money, Imports give money

Formulas for trade and budget

Trade: (exports-imports)

Surplus: positive

Deficit: negative

Budget: government purchases of goods and services + government transferred payments - government tax and fee collections

Budget Deficit = total amount of money that the government borrows in a given year (because total government spending exceeds tax and fee revenue.)

Deficit: positive

Surplus: negative

National Income

Option 1: compensation of employees+ rent + prop income + interest income + corp profit

Option 2: expenditure approach to GDP - indirect business taxes - depreciation (consumption of fixed capitals) - net foreign factor payment

Disposable Personal Income (DPI): national income - household taxes + government transferred payments

Net Domestic Product: GDP- Depreciation

Net National Product: GDP- Depreciation

Gross Private Domestic Investment: Net Private Domestic Investment + Depreciation

Real vs. Nominal GDP

Nominal GDP = value of output produced in current prices. (PxQ)

Real GDP = Value of output produced in constant base year prices (first original year that is being indicated) that is adjusted for inflation. (Base year PxQ)

Nominal GDP can increase from year to year.

Real GDP can increase from year to year only if output increases. (output is quantity)

In the base year the current price is going to be equal to the base year price. (Real GDP = Normal GDP)

In years after the base year, Nominal GDP exceeds real GDP.

In years before the base year, Real GDP exceeds Nominal GDP.

Real GDP: 2-3%

GDP Deflator: nominal/ real x 100

Price index that is used to adjust from Nominal to Real GDP. 

in the base year, the GDP deflator will = 100.

after the base year = greater than 100.

before the base year = less than 100.

Inflation Rate: ((new-old)/old x 100)

CPI: (price of market basket in the particular year/ price of the same market basket in the base year) x 100

Unit 2: Topic 1: Circular Flow

Circular Flow

Household- It is a person or a group of people who share an income.

• sell resources, buy products.

Firms- An organization that produces goods and services for sale.

• buy resources, sell products

Factor (Resource) Market- This is where factors of production are sold. Bought by firms and sold by households. Factor of production: land. labor, entrepreneurship, capital (human, physical)

Firms buy.

Household sell.

Product Market- The market where goods and services are bought and sold.

• Firms sell.
• Household buy

Factor payments-

• LAND- rent
• LABOR- wages
• CAPITAL- interests
• ENTREPRENEURSHIP- profits

Unit 1: Topic 4- Business Cycles

Unit 1: Topic 4- Business Cycles

Business Cycles- Fluctuation in economic activity that an economy experiences over a period of time

Expansion- periods of economic upturn when output and employment are rising.
Peak- (the highest point) this is the period where business has reached a temporary maximum, near/at full employment.
Contraction-(recession) period of decline in total output, income, and employment
Trough - Lowest point, goes from recession to depression