Economics Unit 2

Criticisms of unemployment

-Involuntary part-time workers counted as full-time -Discouraged workers are not counted as unemployed -Race/Age inequalities

nominal deflator

(deflator)x(real GDP)/100

Investment

- Investment is NEVER when individuals buy assets like stocks and bonds - Investment is ALWAYS when businesses buy capital like machines, resources, and tools

3 types of unemployment

-Frictional unemployment- Temporary unemployment or being between jobs. Individuals are qualified workers with transferable skills. -Structural Unemployment- Changes in the labor force make some skills obsolete. -Cyclical Unemployment- Unemployment caused by a recession

Characteristics of the circular flow model

-Individual's demand products and supply resources -Businesses demand resources and supply products

When is the US at full employment

4-6%

Inflation

A continuous rise in the price of goods and services

transfer payments

Benefits given by the government directly to individuals ex:welfare, social security

People helped by inflation

Borrowers-People who borrow money

GDP formula

C+I+G+(X-M)

Inflation Rate Formula

CPI Year 2 - CPI Year 1/ CPI Year 1 x 100

Four components of GDP

Consumption (C) Investment (I) Government Purchases (G) Net Exports (NX)

Menu Costs

Costs money to change listed prices

CPI formula

Current basket/base basket X100

Nominal GDP

GDP measured in current prices

Recovery

Expansion of the economy

GDP approaches

Expenditure Approach -Add up all the spending on final goods and services produced in a given year Income approach -Add up all the income earned from selling all final goods and services produced each year Value-Added approach -Add up the dollar value added at each stage of the production process

a market basket includes

Food and Beverages Housing Apparel Transportation Medical Care Recreation Education and Communication Other Goods and Services

natural rate of unemployment

Frictional plus structural unemployment. The amount of unemployment that exists when the economy is healthy and growing.

Real GDP

GDP adjusted for inflation

Government

Government expenditure tracks the spending made in the "public sector". -includes government spending on goods and services. Ex: price of fighter jets, pilot salaries -It does not include money spent on "transfer payments" (welfare, social security, and subsidies.)

doesn't count in GDP

Intermediate goods -Goods inside the final goods don't count Nonproduction transactions -Financial transactions (nothing produced) -Used goods Nonmarket and illegal activities -Things made at home- household production

Nonmarket Transactions

Many goods and services provide value but don't count in GDP

Unit of Account Costs

Money doesn't reliably measures the value of goods/service

GDP deflator

Nominal GDP/Real GDP x 100

Shoe Leather Costs

The costs of transactions increase.

Macroeconomics

The study of the economy as a whole

Examples of financial actions with economic impacts not accounted for in GDP

Volunteering Transfer payments Home-made products Sale of used or antique products Black market and underground sales

Subsidies

a sum of money granted by the government or a public body to assist an industry or business

Calculating market basket

add up the prices of all items in the basket in a given year

Firm

an organization that uses resources to produce a product, which it then sells

Deflation

decrease in general prices or a negative inflation rate

Macroeconomic goals

economic growth, full employment, stable prices

People hurt by inflation

lenders, people with fixed incomes, savers

real wage

nominal wage adjusted for inflation

unemployment rate formula

number of unemployed/labor force x 100

factor payments

payment for the factors of production, rent, wages, interest, and profit... etc

Recession

period of reduced economic activity (6 months)

Disinflation

prices increasing at slower rates

nominal wage

the dollar amount of the wage paid

GDP

the dollar value (the total market value) of all final goods and services produced within a country in one year

public sector

the part of an economy that is controlled by the government

private sector

the part of the economy that involves the transactions of individuals and businesses

circular flow diagram

traces the flow of resources, products, income, and revenue among economic decision makers

GDP percent change

year 2 - year 1 / year 1 x 100

Who is in the Labor Force?

•At least 16 years old •Able and willing to work •Not institutionalized (in jails or hospitals) •Not in military, in school full time, or retired