Macro Test 2

expected inflation- unexpected inflation-

-10% of inflation is caused by pressures from suppliers wanting to increase profits. thus where or not inflation is expected makes a big difference in individuals behavior. -expected inflation- is inflation people expect to occur -unexpected inflation- is inflation that surprises people.

Demand Curve

-A demand curve is the graphic representation of the relationship between price and quantity demanded -a curve that shows the relationship between the price of a product and the quantity of the product demanded -The demand curve is downward sloping

example of supply - off forum

-An example of the law of supply in action is the rise of the price of flowers on and around Valentine's Day. Because of the massive volume needed to meet the demand of last-minute shoppers, suppliers must charge more to compensate for the increased amounts of manual labor needed to process the flowers after harvesting. In this scenario, the quantity supplied per unit time is directly proportional to the price per unit, meaning that the supply curve has positive slope and is therefore demonstrative of the law of supply. -difference between supply and demand is In other words supply is the quantity of a specific item that can be sold on the market at any time. Demand on the other hand is the willingness of the consumer to purchase the product at a given price.

Define- COLA- CPI- PPI-

-COLA - Cost of Living Adjustment -Social Security has 100% cost of living adjustment. Every time inflation goes up by 3%, Social Security payments increase by the same rate. -CPI - Consumer Price Index (what wage earners spend their money on) -PPI - Producer Price Index

What are types of inflation? and explain.

-Demand Pull - "Too much money chasing too few goods" - Money supply is increasing faster than goods and services. If money doubles and supply of goods and services remain the same, prices go up. -Cost Push Wage Push Profit Push Commodity Push - Raising price for any justifiable reason, has to be monopoly power -Creeping Inflation - inflation which proceeds for a long time at a moderate and steady pace -Hyperflation - exceptionally high rates of inflation, also called galloping inflation (Hungary 1945-46, Germany 1920s) -Stagflation - High inflation with high unemployment and stagnant economy

When was the depression? what makes it considered a recession? labor union workers strike when?

-Depression - 1929-1940 -Recession - When GDP is down for 2 consecutive quarters. -Labor unions strike in good times. -Workers will take overtime for a while, but after a certain point workers will rather have the time off for family, hobbies and time to spend the money. -Recession - When GDP is down for 2 consecutive quarters.

-Equilibrium-

-Equilibrium is a concept in which opposing dynamic forces cancel each other out

In the free market, the forces of supply and demand interact to determine:

-Equilibrium quantity is the amount bought and sold at equilibrium price -Equilibrium price is the price toward which the invisible hand drives the market

Give 2 examples of money illusion

-Even people whose nominal incomes "keep up" with inflation often feel oppressed by rising prices. -they feel cheated when they discover that their higher (nominal) wages don't buy additional goods.

excess demand causes what excess supply causes what

-Excess demand causes upward pressure on price -Excess supply causes downward pressure on price

Forcasting - define and explain ways how

-Forecasting - Economists trying to see what might happen. 1.-Opinion Polls (Gallup, Consumer Confidence Index, Harris Poll) 2. Economic Indicators A.Leading Indicators - preceding business cycle, price of raw materials, length of workweek, building permits, initial unemployment claims B.Coincident Indicators - inflation rate, GDP C.Lagging Indicators - unemployment rate, capital formation 2.Econometric Models: Statistical models based on past data -Example of an Econometric Model (they are used extensively in economics): Birth Rate = f (Y + Bad Weather + Women of Childbearing Age + Fertile Males + Education + Religion) = R2 These variables account for 79% Car Demand = f (Y + P + I) Y = income P = price I = interest rates These variables account for 80%

What are the 3 types of unemployment?

-Frictional (or transitional)- people between jobs, leaving one job to seek a new job, moving to a new location to seek work (increases in good times) -Structural - jobs that are no longer needed or there is less demand for (phone operators, farmers, milkman) -Cyclical - fluctuations in business cycle (being laid off from job in auto plant because car sales are down) -Hardcore unemployed or discouraged worker - people who have given up looking for work.

GDP- REAL GDP- GDP=CIGF

-GDP - measure of production, not well-being of economy. -GDP - Final sales value of all goods and services produced in the domestic economy for year -Example: If you purchase a used car and replace the engine and repaint it, the new engine and paint job are included in GDP, but the sale of the used car is not. -Purchase of stocks doesnt go into GDP but broker fee does. Stock purchase is a transfer of ownership, not an investment. It is also a form of savings. -Real GDP - Final sales value of all goods and services produced in the domestic economy for year minus inflation. GDP = C + I+ G + F C= Consumer Households I= Business G= Government F= Foreign Sector *-If GDP goes down, employment goes down. -US didnt have a trade deficit until 1970. --GDP & employment go up together -GDI - Gross Domestic Income

excise tax- tariff-

-Government impacts markets through taxation -An excise tax is a tax that is levied on a specific good -A tariff is an excise tax on an imported good -The result of taxes and tariffs is an increase in equilibrium prices and reduce equilibrium quantities -Government imposes a $10,000 luxury tax on the suppliers of boats -The supply curve shifts up by the amount of the tax -The price of boats rises by less than the tax to $70,000

What are some ways the gov. does to restrict quantities?

-Government regulates markets with licenses, which limit entry into a market -Many professions require licenses, such as doctors, financial planners, cosmetologists, electricians, or taxi cab drivers -The results of limited number of licenses in a market are increases in wages and an increases in the price of obtaining the license --Example -Successful lobbying by taxi cab drivers in NYC resulted in quantity restrictions (medallions) And When the demand for taxi services increased, because the number of taxi licenses was limited, wages increased -The demand for taxi medallions also increased because wages were increasing. But because the number of taxi licenses was limited, the price of a medallion also increased

Third-Party-Payer Markets

-In third-party-payer markets, the person who receives the good differs from the person paying for the good -Under a third-party-payer system, the person who chooses how much to purchase doesn't pay the entire cost -Equilibrium quantity and total spending can be much higher in third-party-payer markets -Goods from a third-party-payer system will be rationed through social and political means

Define- Indexing tax brackets- inflation- deflation-

-Indexing tax brackets - means moving tax brackets up according to inflation rate -Inflation is the increase in general (average) price level (most people associate inflation with price increases of specific goods and services.) Not a change in any specific price. -Deflation - A decrease in the general price level. Occurred in 1860-70s because of technology. Introduction of railroads which improved transportation of farm goods to cities. All prices plummeted.

Traditional models provide simplicity and insight, why?

-Modern traditional economists prefer staying with the narrower building blocks of rationality and self-interest. -traditional models provide simple and clear results, which can highlight issues that behavioral models cannot. -some traditional economists have begun using a broader set of building blocks.

2 basic lessons to be learned about inflation

-Not all prices rise at the same rate during inflation. -not everyone suffers equally from inflation

Phillips Curve-

-Phillips Curve - Prof. Phillip showed the inverse relationship between inflation and unemployment. When there is high unemployment there is Low inflation - sellers cant raise prices. When there is high inflation there is low unemployment - prices can be raised. 5 - 6% unemployment is considered full employment during the 1970's and 1980's. -As demand get closer to capacity, prices go up -Milton Friedman (who attended Rutgers College) tried to reduce high inflation in a South American country - result was high unemployment - this can bring on civil strife in an unstable country -Inflation/Unemployment - Misery Index = Inflation rate + Unemployment rate

Shifts in Demand versus Movements Along a Demand Curve -Quantity Demanded -Demand

-Quantity demanded refers to a specific amount that will be demanded per unit of time at a specific price, other things constant -A change in price changes quantity demanded A change in price causes a movement along the demand curve -Demand refers to a schedule of quantities of a good that will be bought per unit of time at various prices, other things constant - A change in anything other than price that affects the demand curve changes the entire demand curve -A change in the entire demand curve is a shift in demand

Shifts in Supply versus Movements Along a Supply Curve

-Quantity supplied refers to a specific amount that will be supplied per unit of time at a specific price, other things constant -A change in price changes quantity supplied -A change in price causes a movement along the supply curve -Supply refers to a schedule of quantities of a good a seller is willing to sell per unit of time at various prices, other things constant -A change in anything other than price that affects the supply curve changes the entire supply curve - A change in the entire supply curve is a shift in supply

How are quotes similar to price ceilings and floors? What do they do to the price of the good that has a quota on it? Can anyone give example of goods with quotas on them?

-Quotas and price celings sets limits and restriction. The limits are based on materials and production . For example, the government impose quotas to prevent too much supply so that the price will not go down. Quotas are regulated by the goverment to control supply or price.. -There are no shifts here! It is like a price ceiling or floor. On a graph it would be a straight line up before equilibruim from the horizontal axis. It would hit the demand curve first then higher up it would hit the supply curve. The seller would sell it at the higher price. Its purpose is to drive up prices.

Can anyone think of any price floors or ceilings put on a good or service by the government? Can price floors and ceilings be put on by anyone other than the government? What is a consequence of price floors and ceiling? (forum)

-Rent control is an example of a price ceiling set by the government. The consequence of the rent control was that there became a shortage of apartments, and many people who couldn't find housing ended up living on the streets. Because the rental properties were no longer profitable nobody was building anymore. Though it is not all negative or they would not of been instituted. Minimum wage laws is an example of price flooring set by the government in the book as well. Which is set above the equilibrium, it is good for people who can find work, but for those who can't and otherwise would be willing to work for less it is tuff on them. I think that the government are the only ones legally able to set these, though the people have a lot to do with why and on what they are set on. For example if prices were to start falling on something the sellers would look to the government to to hold prices up, or if they started to get to high the buyers would look to government to keep them down. -Price ceiling are not just put on by the government. When a concert sells out in 5 minutes what was the problem? The music group sometime purposefully keep the price low and they are not the goverment. John Sullivan

What are some other formal models? Set theory models- game theory models- agent-based computational (ACE) model- explain

-Set theory models-are based only on formal logical relationships. -game theory models-are models in which one analyzes the strategic interaction of individuals when they take into account the likely response of other people into their actions. -agent-based computational (ACE) model- is a culture dish approach to the study of economic phenomena in which agents are allowed to interact in a computationally constructed environment and the researcher observes the results of the interaction.

Shift Factors in Demand

-Society's income 1.Normal or superior 2.Inferior -The prices of other goods 1.Substitute 2.Complementary -Tastes or Preferences -Population (demographic changes) -Expectations -Taxes and subsidies to consumers

What is the difference between a shift and a movement in demand? in forum

-The difference between a shift and a movement refers to the effects that influence the demand for a given product. This difference shows that there other factor besides price that affects how much people are willing to purchase a given item. The comparison between these two can be seen visually on a demand curve graph. A shift factor is something, other than the price, that affects a change on the demand. A movement along the demand curve reflects the effect of a change in price on the demand for something. As Colander shows, there are many examples of factors that can affect a change in demand other than the price of a unit. He points out the rise of income can have an influence over the demand for something over time. As long as peoples' income keep up with the rising cost of something, the demand will remain the same, or would even go up.

Supply Curve

-The law of supply states that the quantity of a good supplied is directly related to the good's price -In other words, other things equal, Quantity supplied rises as price rises Quantity supplied falls as price falls -The law of supply occurs because: When prices rise, firms substitute production of one good for another Assuming firm's costs are constant, a higher price means higher profit -A supply curve is the graphic representation of the relationship between price and quantity supplied -The supply curve is upward sloping -As price increases, quantity supplied increases

market demand curves and supply curves

-The market demand curve is the summation of all individual demand curves -The market supply curve is the summation of all individual supply curves

the foreign exchange market- exchange rate-

-The market for foreign currencies is called the foreign exchange (forex) market -The exchange rate is the price of one currency in terms of another one -People demand foreign currencies to buy those countries' goods and assets -Exchange rates are determined by supply and demand

price ceiling

-When a government wants to hold prices down to favor buyers, it imposes a price ceiling -A price ceiling is a government-imposed limit on how high a price can be charged -Price ceilings below equilibrium price will have an effect on the market -they create shortages -With price ceilings, existing goods are no longer rationed entirely by price so other methods of rationing arise -rent price fixing is an example

price floor

-When a government wants to prevent a price from falling below a certain level to favor suppliers, it imposes a price floor -A price floor is a government-imposed limit on how low a price can be charged -they create excess supply -Price floors above equilibrium price will have an effect on the market -A minimum wage is a type of price floor, it is the lowest wage a firm can legally pay an employee

How do modern economists think?

-When you present a problem or question to an economist, he or she will reduce that question to a model and work with the model and empirical evidence to understand the problem

Why are behavioral models difficult to test?

-behavioral economics depends on the specific context of the choices involved so it has many models. -many more patterns can be discerned in the data buy it is hard to know what pattern to focus on. -Experimental economics- (laboratory and field experiments) can test alternative building blocks. -endowment effects- people value something more just because they have it, can be included.

what are the Role of formal models?

-data, by themselves, have no meaning, they have to be interpreted using theory, models, and building blocks to be meaningful -economists use natural experiments which are events created by nature that can serve as an experiment -modern economists use simple models, but they also us models that allow for much more complex relationships among variables.

what are some microeconomic categories of unemployment?

-how people become unemployed -demographic unemployment -duration of unemployment -unemployment by industry.

labor force participation rate- employment-population ratio- capacity utilization rate-

-labor force participation rate-measures the labor force as a percentage of the tool population at least 16 years old. -employment-population ratio-the number of people who are working as a percentage of people available to work. -capacity utilization rate-the rate at which factories and machines are operating compared to the maximum sustainable rate at which they could be used. it indicates how much capital is available for economic growth.

labor force discouraged workers-

-labor force-those people in an economy who are willing and able to work, -discouraged workers-people who do not look for a job because they feel they don't have a chance of finding one.

Inflation/Unemployment Misery Index

-made popular by ronald reagan -the misery index = inflation rate + unemployment rate

The nature of economists models. give examples.

-models can be mathematical or heuristic which are models that are expressed informally in words. -models can be made from physical components or as computer simulations -modern economists are economists who are willing to use a wider range of models than did earlier economics. -modern economists use more of an inductive, as opposed to deductive approach to modeling.

explain empirical work in modern economics

-modern economics is highly empirical -both traditional and modern behavioral economic building blocks rely on experiments and statistical analysis of real world observations -the relationship in the heuristic model is empirically studied. -econometrics is the statistical analysis of economic data. -an empirical model is a model that statistically discovers a pattern in the data.

What are the limits of heuristic models?

-most economists see heuristic models as simply a stepping stone to a more formal model. -heuristic models are not sufficiently precise, making their validity impossible to test. -in a scientific sense we really don't know anything more about the world after using heuristic models than we did before, therefore science is not based on heuristic models. -heuristic models must be extended to quantify and empirically test the arguments for a true understanding.

Stagflation- and when did we have it?

-name given the economic condition throughout most of the 1970s in which prices rose rapidly (inflation) but without economic growth (stagnation). Unemployment rose along with inflation. In large part, these conditions were the economic consequences of rising oil prices. -1970s were a period of stagflation - stagnant economy + high inflation + unemployment

potential output- Okun's rule of thumb-

-potential output-is defined as the output that will be achieved at the target rate of unemployment and the target level of capacity utilization, -Okun's rule of thumb- states that a 1 % point change in the unemployment rate will be associated with a 2% change in output in the opposite direction.

what is leading indicators? and name some-

-signs that indicate when a recession is about to occur, and when the economy is in one. -they tell us whats likely to happen 12 to 15 months from now. some examples; 1.average workweek for proaction workers in manufacturing, 2.average weekly initial claims for unemployment insurance. 3.manufacturers new orders for consumer goods and materials. 4.vendor performance, measured as a percentage of companies reporting slower deliveries from suppliers. 6.stock prices-500 common stocks 7.# of new building permits issued for private housing units. *notice that these are indicators not predictors!

What are the phases of a business cycle? What is the definition of a recession? What part of the business cycle is the United States now in? (forum)

-the business cycle is "the upward or downward movement of economic activity, or real GDP, that occurs around the growth trend." The business cycle is broken up into phases. The high point of a business cycle, called a peak, is when the total output is high. A boom is the highest forms of peaks, which show an output jump. After a peak, there is a downturn, which is when the output falls from the peak. A recession can be part of a downturn if there is a decline in real output for more than two quarters consecutively. A larger form of recession, which could also be part of this downturn phase is called a depression, which is more severe than a recession. Finally, a trough is the lowest point of a downturn. After this, the real output expands again and the economy grows again. This is known as an upturn, or expansion, which is an upturn that lasts two quarters consecutively. -The United states of America has an economy downswing right now. According to my definition that is understood as the depression phase. Which alone sounds very accurate being that we where just in a recession 2008 and that's the next phase in a Business cycle. Rest assure as you can see on the picture recovery is soon to come, I predict a turning point in are near future.

explain regression models.

-the primary told of an empirical economist is regression model which is an empirical model in which one statistically relates one set of variables to another. -a regression finds a line that best fits a combination of points. -the coefficient of determination is a measure of the proportion of the variability in the date that is accounted for by statistical date. -the larger the coefficient of determination, the better the fit of regression.

what are the 4 phases of the business cycle?

1. the peak 2.the downturn 3.the trough 4.the upturn. -the top of a cycle is called the peak. (a boom is a very high peak, representing a big jump in output) -a downturn describes the phenomenon of economic activity starting to fall from a peak. -the bottom of a recession or depression is called the trough. -as total output begins to expand, the economy comes out of the trough, which is an upturn.

How can 4 to 6 % unemployment be considered full employment? (forum)

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How come people on unemployment are not used to calculate the unemployment number? Why are the current unemployment claims of interest to people in the financial markets? (forum)

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What are the current numbers for unemployment of whites, blacks, Hispanics, women, teenagers, etc? There are many more categories and statistics they are all welcome. In addition, what are some of the unemployment rates for other countries? In particular, I am looking for unemployment rates for the Middle East (e.g., Iraq, Iran, Palestine, etc.). (forum)

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What will happen to the price and quantity of gold jewelry when the price of gold doubles? Why and what is the reason for the shift? Only one curve shifts in all my examples except when there are two graphs like with substitutes and compliments. (forum question)

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What is a model?

A model is a simplified representation of the problem or question that captures the essential issues. -the modeling approach is the modern economics approach.

What countries have a rapid inflation problem?

A rapid inflation rate is a problem in South America, Israel, and the former Soviet Union.

What is a third=party market? Give an example with paying for this course. You pay about one-third of the actual cost. (forum)

A third party market's definition from the book is when the person who receives the good differs from the person paying for the good. Health car is a good example of this as well with only paying a co-pay, and Medicare and Medicaid are both third party payers. An example for me for this course is that I was able to get a student loan to pay for my summer classes. (though eventually I will be paying it off at the moment it is a third party payer who is taking care of it right now) If I was not able to have gotten that, I would of not demanded that I take more classes during the summer. It would be the same thing if say my parents were paying for college, I would be demanding more classes than I would if I were paying it all on my own.

What are the different types of unemployment? Explain them! (forum)

According to class notes, the three types of unemployment are frictional, structural, cyclical, and seasonal. Frictional unemployment is when there is an adequate demand for labor ad the job search for someone is short. It is the type of unemployment in which one quits a job and finds a new one quickly. Structural is when there is a mismatch of the skills of a job and certain jobs are not needed. An example today would be the milkman, who is no longer needed because we have grocery stores. Cyclical unemployment is recently what affected our country with the recession. It is due to fluctuations in the economy. Seasonal unemployment is due to the seasons. Such an example is a lifeguard at a beach, because no one will be there in the winter, so during the winter, he will not have that job.

Automatic stabilizers define and give examples-

Automatic Stabilizers: help stabilize the economy automatically and do not need to passed by congress on an as needed basis. 1. Unemployment insurance* 2. Farm price supports* 3. Progressive income tax 4. Corporate dividend policy 5. Econometric models * These two help to soften downturns and prevent another depression Example: Food stamps help farmers by increasing consumer demand for food

What is the current inflation rate? Has it been going up or down over the last decade? (forum)

By looking at the graph on http://www.usinflationcalculator.com/inflation/current-inflation-rates/, one can conclude that the US inflation rate has gone both up and down within the last decade, mainly hitting its highest before the recession of 2008, and it has since gone up in 2009 to 2.7%, going down to 1.5% in 2010, up to 3.0 % in 2011, and it is now at 2.3%. The inflation rate in 2002 was 2.4%, so our current inflation rate is 0.1% than what it was a decade ago and is lower than last year's inflation rate.

What is the CPI and the CPI's current rate today? Why is it important to you? (forum)

CPI of consumer price index is a measure of the overall cost of the goods and services bought by a typical consumer. The CPI for all items in 2012 is 2.3. Food had a CPI of 3.1, energy had a CPI of .9 and new vehicles had a CPI of 2.2. This calculates what the price of living is to the typical consumer and that makes it important to almost everyone.

CPI

CPI-consumer price index measures the prices of a fixed basket of consumer goods, weighted according to each components share of an average consumers expenditures.

Hidden Unemployment There is a lot of talk lately about the real unemployment rate. What is meant by the real unemployment rate? (forum)

Colander defines the unemployment rate as the number of people able and looking for work (but unemployed) divided by the number of people in the labor force. This number is the number the BLS uses when they cite unemployment. However, this does not take into account any of the populations that Colander weeds out in his graphic Figure 6-4 (pg 142, 7e). Thus, those who are unavailable to work are not included - I would agree that these people (prisoners, children, elderly) should still be excluded from the statistic. But his graphic identifies two populations that I think should be included in the real unemployment rate - people who have give up looking for employment because they are discouraged about finding a suitable job as well as those people who are students because they went back to school to try to obtain skills for a different career. Typically students are excluded from unemployment statistics, but some are not there by choice.

Demand Pull cost push

DEMAND PULL- when demand for goods outraces the economy's ability to produce goods. Too much money+ too few goods= increase in goods' prices. Government is often the cause: Spending goes up or stays the same and taxes go down= price increases., COST PUSH- when sellers increase prices to compensate for their increased costs, they push the cost onto consumers. Problem is prices can only increase so much before demand goes down. -During World War II, the government diverted some of the goods and services from households so there was a Demand-Pull type of inflation

What is deflation? What is it significance today? How does it hurt the economy? (forum)

Deflation is when a price falls over a period of time. The most recent source of worry has been the housing market. The deflation of home values has left many people with upside down mortgages. This has hurt the economy by preventing people from being able to sell their homes to move to new locations to find work and by preventing new construction because people are afraid to buy until homes stop deflating. Lack of new construction is one of the measures of a recession, so one might say that deflating home prices are drawing us deeper into a recession.

What is the tradeoff between simplicity and completeness?

Earlier economics- -used traditional building blocks -primarily deductive methods -used simple S/D models modern economics- -many use traditional or behavioral building blocks -much more empirical-use inductive methods. -use both simple and more complicated models. -although the S/D model is not complete, it's simple. -in complex models, the aggregate economy can suddenly change depending on what people believe -you can have a self-confirming equilibrium or a butterfly effect model.

Give an example of demand - (this is a question of the forums-

Example: An example of demand would as simple as taking a look at your local Wal-Mart. Ever notice how the outside of a store changes with season. If its snowing you can generally find Christmas trees and sleds outside your local Wal-Mart. If its sunny and around the summer time, you would see bikes, around the fall time they often have Halloween decorations and pumpkins. Demand is often associated with price, so often few people forget Demand can be associated with other things as well. A company like Wal-mart is successful for multiple reasons. Top reason being they understand the time of year often has allot to do with what the needs and wants of their customers are. So they make sure they are stocked up and decorated according to season in fact they have special "sales" going on the items that are hot that season.

What are the human costs of unemployment? (forum)

Human costs of unemployment are the devastating effects of unemployment on a person's physical wellbeing and dignity. Overtime unemployment begins to weigh on a person's sense of worth. Not only are they unable to earn an income to provide basic necessities for themselves or their family they may also have to resort to less than flattering means by which to procure food and shelter. An excerpt I obtained from an online site provides a good description of the human costs of unemployment: But fear was everywhere. In every American city, hordes of families were evicted from their apartments, often moving in with other families until ten or twelve people would be sharing three or four rooms, often shivering through the winter in heatless houses because they could afford little or no coal. Many fought to maintain respectability. Clerks put pieces of cardboard inside their shoes before setting out on endless job-hunting rounds; previously well-to-do families wiped out in the stock-market crash struggled back to get poorer jobs and to use part of their drastically reduced incomes to pay on their debts. But for many, long-continued failure wiped out self-respect and the will to try.

What was the CPI over the last 50 years? (forum)

In 1952 it was 26.500.. in 2012 it is now 224.939 In 1983 it hit over 100

What is the definition of inflation? How does inflation affect you? What is the current rate? When does it occur? (forum)

Inflation is something that is measured over time. Its understood as the price index, a number of goods representative over the economy are put together into then a percentage of cost in the starting of the year. Most things in the economy take around 30 years to double in price. For example mortgage on a house. Unfortunately school is leading in inflation rate and the price of school supposedly doubles every 2-4 years. Inflation affects me as a student directly. A big thing most college students do is underestimate Inflation rates. Although I have student Loans and scholarships they may think, at the end of the day when school is over and done with you still have to pay a certain amount. Ill-advisley Chances are the amount is five times the amount of money you should be paying and that its self is a little bit of what inflation is. Intreste rates are measured just like inflation rates and that is why inflation can be dangerous. I know many adults around and close to my age that have bad credit simply because of interests. A credit card can be a dangerous thing especially when you have no money, Now imagine inflation as an invisible credit card scary to imagine. The current rate of inflation at the end of April is understood as 2.30%. April is a good month to pick because takes are usually over and done with by then. Inflation can occur any time! Its at its strongest when demand for a product and service is stronger than supply. A natural disaster is a technological success for Inflation. The less of something the higher it cost, the more people need it the more they will be willing to pay.

thoughts on business cycles from Keynesians- classicals-

Keynesians-generaly favor activist government policy. They argue that fluctuations can and should be controlled. and that expansions (the part of the business cycle about the longterm trend) and contractions (the part of the cycle below the long tern trend) are symptoms of underlying problems of the economy, which should be dealt with by government actions. classicals- generally favor laissez-faire or non activist policies. they argue that fluctuations in economic activity are to be expected in a market economy. and that individuals will anticipate government reaction, thereby undermining governments attempts to control cycles.

thoughts on unemployment from Keynesians- classicals-

Keynesians-tend to say society owes people jobs commensurate with their training or past job experience. classicals-generally believe individuals are responsible for finding jobs, and that someone can always find some job at some wage, even if selling apples on the street for 40cents.

Labor Force

Labor Force - Number of people above age 16 who are holding jobs or actively looking for work. If you are not in the labor force, you are not considered unemployed (full-time students, a parent staying home to care for children full time).

What is the unemployment rate in New Jersey? What states have the highest unemployment and why? What states have the lowest unemployment and why? (forum)

Nj is 9.1%... Nevada is the highest at 11.7 % along with Rhode Island being 11.2%. California has a 10.2 % as well. /webcourses/jump/defframes.asp Nevada is an easy response because the economy is bad, then people are not going to the casino and vegas. This is their revenue in the state and when people do not come to gamble they had to crunch the budget alot more and led to cuts in schools and other jobs. These are so high because theese are the states with limited recourses and many people who need jobs. Limited recourses means no income is leaving the state and they have to crunch numbers and jobs are lost. The states with lowest un employment include North dakota and nebraska. these are so low because of recources like oil and agrilcultre. Even though that other states produce more North Dakota is special because of thier banking! "The Bank of North Dakota (BND) does not compete with local banks but partners with them, helping with capital and liquidity requirements. It participates in loans, provides guarantees, and acts as a sort of mini-Fed for the state." They are not in debt which alllows them to have an economic boom with jobs because they do not need to cut down or fire people.

On average. women get paid less than men? What are the likely reasons for that? Should the government intervene with a law that requires firms to pay equal wages to those with comparable skills? (Feminist) Relate to supply and demand. (forum)

One reason women tend to get paid less than men, is because historically men were the primary bread winners of families with women mainly staying home to care for the home and raise children. Wife's paychecks were considered supplemental to their husband's income. However with increasing numbers of women functioning as sole earners for their families it no longer makes sense for this disparity. According to a Politico article on June 5, 2012 more than two-thirds of American families depend on women as either breadwinners or co-breadwinners. The article also stated that, "Study after study from economists, experts and the Government Accountability Office has demonstrated that women are being paid less than their male colleagues for the same work across age, occupation and education level." Their opinion is that pay inequity hurts not only women but families, and that when women are paid less, families have less take-home pay to make ends meet and make the economy grow. If the private sector refuses to provide equal pay for women then the government should intervene in order to ensure equal rights of citizens. Women and men incur the same amount of debt pursing an education for their professions and must pay the same amount for goods and services therefore they should receive equal pay for jobs requiring comparable skills. This relates to supply and demand in that it is an example of a price floor. While it is not exactly minimum wage, it is a way to make sure that wages do not drop below a certain level for one population over another based on gender alone. Unemployment is already high and therefore jobs are in high demand for both men and women. If wages are mandated to be equal then there is less of an incentive to hire women based on the fact that they generally accept less than their male counterparts. Therefore the quantity of women supplied would exceed the quantity demanded and more women would be potentially become unemployed.

What are the reasons for shifts in Supply? Give examples! (forum)

Price of inputs, technology, expectations, and taxes & subsidies are shift factors of supply according to the text. Example: supplier of calculators technology- If a supplier gets a new machine that increase production parts and reduces the cost of production price of inputs- workers get a wage increase to run the machines, package the calculators. expectations- a new school year starts in 1 month, so the supplier will slow production down for the next 2 weeks then at the end of the month put out more calculators taxes & subsidies-a new tax on manufacturing electronic goods passed by the government, increasing the cost of production.

PPI

Producer price index- is an index of prices that measures average change in the selling prices received by domestic producers of goods and services over time. -this measures price change from the perspective of the sellers, which may differ from the purchasers price because of subsidies, taxes, and distribution costs and includes many goods that most consumers do not purchase.

How does the business cycle go? what is not included? and what type of businesses do well in a downturn?

Prosperity --recession -- depression -- recovery -Economists like to see steady increases in business cycle. -seasonal sales are not included in the business cycle Examples: Christmas sales, vacations in summer -Downturn in economy - Businesses that do well are: pawnshops, bars, car parts (people will repair a car rather than purchase a new one), Jersey Short (people will take inexpensive vacations)

reasons for supply shifts

Reasons for Shifts- Technology Input Prices Size of Industry Expectations A change in a shift factor causes a shift in supply

Who are demanders and who are sellers? Do you sell anything? Does Ford Motor Company demand anything? (forum)

Sellers is someone or company that provides a product or service to someone who demands that they need it. We demand things everyday. As a hair stylist I am a seller to those who demand that they need their hair cut, or colored. So I sell my services because I am demanding that I can use money in exchange for my time. I am also a demander in needing scissors, color, hair products in order to provide my service. I think everybody at some point is a seller as well as demander, for example when you go on an interview for any job you are selling yourself, and showing why someone should demand you instead of someone else. Ford Motors would demand many things as well as sell them, they demand good employees to maintain their company as well as employees in the factories to make and build their motors. As well as they would demand materials in order to make the motors.

What are the limitations of supply and demand? (forum)

The Chapter points out the limitations of supply/demand analysysis is when there is a decline in wages in which people's income is lowered , the demand is reduced. The reduction feedback is relayed back on firms to reduce their demand for goods and thereby it reduces their demand for workers. Supply/demand analysis questions where the goods are for a small percentage of the entire economy, and so the "other-things-constant" assumption is at play, but as soon one starts to analyze goods for large percentage of the entire economy, the other-things-constant is likely not to hold true, this is termed fallacy of consumption, which means "what is true for a part, will also be true for the whole".

PCE

The personal consumption expenditure deflator allows yearly changes in the basket of goods. -a measure of prices of goods that consumers buy that allows yearly changes in the basket of goods that reflect actual consumer purchasing habits.

Types of inflation What are the types of inflation (See my notes)? (forum)

There are 5 types of inflation. 1) Demand Pull- this means if the money supply is increasing and the supply of goods and services is staying around the same amount, the price of goods and services is going to go up. 2.) Cost Push which is divided into 3 parts: Wage Push, Profit Push, and Commodity Push. Commodity Push means that a monopoly power has the power to raise prices for any reason they think they can justify. 3.) Creeping Inflation- this is inflation which raises steadily over a long period of time. I am assuming by the name that most don't notice the price going up, it may only increase by a few dollars or a few hundred dollars (depending on the product or service) each year and then in 5 years you look back and think that the price used to be much lower. This happens all the time with clothes. A couple years ago a pair of jeans used to be $40 at a given store, 5 years later they are $60 and each year I hardly realized the raise in price. 4) Hyperflation-extremely quick and high rates of inflation. An example would be gas prices a few summers ago. Gas was 2.99 per gallon and then within 1 month it was over $4.00 and people have no choice but to pay it. 5) Stagflation is high inflation during times of a bad economy and high unemployment.

Traditional economists- behavioral economics-

Traditional economists- are economists who study the logical implications of rationality and self-interest in relatively simple algebraic or graphical models such as the supply and demand model. behavioral economics- is microeconomic analysis that uses a broader set of building blocks than rationality and self-interest.

What are 2 broad categories of investment?

Two Broad Categories of Investment -Capital (new) -Change in Inventories If it is not in one of these categories, it is not an investment. -Purchase of stock - Transfer of ownership, not an investment. Not included in GDP.

Can some prices go down during inflation?

Yes! Digital watches went from $2,000 in 72' to $7 in 79' Polaroid cameras went from 100 in 63' to 19$ in 79'

deflation

a continual fall in the price level. -historically we have seldom seen long periods of deflation

price index- how do you get the #

a number that summarizes what happens to a weighted composite of prices of a selection of goods (often called a market basket of goods) overtime. -price indexes are important. -it is calculated by dividing the current price of a basket of goods by the base price of a basket of goods.

the unemployment rate is measured by what?

by dividing the number of unemployed individuals by the number of people in the civilian labor force and multiplying by 100.

***What are the reasons for shifts in demand? Give examples! (Forum)

caused by anything other than a change in the price of the good. The shift factors of demand explain the most common reasons why a shift occurs. 1.) Society's income- An increase in income means an increase in demand for "Normal Goods." Normal goods are things such as cars, electronics, and clothing. With a higher income consumers buy more of normal goods yet an increases income decreases the demand for "inferior goods." Inferior goods are things just as a train or a bus. With higher incomes people tend to stop traveling on public transit and drive their own cars because they can afford to pay for gas and parking costs. 2.) Prices of other goods- When consumers buy items they tend to shop around to see what similar products are selling for to find the best price. Another explanation is if the price of something drops, where are consumers willing to spend their extra money. An example of this is if a person enjoys seeing broadway plays but the 150 dollar tickets are a stretch they may choose to not go to a restaurant while in the city. But if the price of tickets dropped to 120 dollars they may choose to also treat themselves to a nice meal after the show. 3.) Tastes- Different people like different things. Things also go in and out of popularity and style. 4.) Expectations- People tend to speculate when making purchases. If someone is looking to buy a car in april, they may expect that there will be a Memorial Day sale and wait until the end of May to buy a car. The same can be said if someone expects they may need to get a new car over the summer, a sees a car they love during a labor day sale they may choose to buy in then rather than waiting and having to pay more or risk having their car completely break. 5.) Taxes and subsidies- Tax add additional fees, which decrease demand. Subsidies do not add fees and could increase demand. For example I go to school in West Virginia which has sales tax on clothing. When I needed to buy shorts for the summer I waited until I came home for spring break to shop in New Jersey to avoid the Sales Tax. (I am a poor college student feel bad for me) However when shopping for clothes online while in West Virginia was the first time I had ever come across subsidies,when I got a pop up saying "Tax free if shipped to West Virginia."

the development of what has changed how modern economics is done?

computers and empirical models

equilibrium quantity- equilibrium price-

equilibrium quantity- is the amount bought and sold at the equilibrium price. equilibrium price- is the price toward which the invisible hand drives the market. At the equilibrium price, quantity demanded equals quantity supplied.

excess supply- excess demand-

excess supply-(a surplus) - quantity supplied is greater than quantity demanded. and some suppliers won't be able to sell all their goods. (so they sell for less) excess demand- (a shortage) reverse of excess supply, quantity demanded is greater than quantity supplied.(so prices get increased)

GDP deflator- GDP-

gross domestic product deflator, is an index of the price level of aggregate output, or the average price of the components in total output (or GDP), relative to a base year. GDP- is the measure of the total market value of aggregate production of goods and services produced in an economy in a year.

Hyperinflation

hyperinflation is exceptionally high inflation of say 100 percent or more per year. when inflation hits triple digits. -in hyperinflation people try to spend their money quickly but they still use the money. put it into something rather then money. -usually in a hyperinflation the government issues indexed bonds whose value keeps pace with inflation.

is inflation good or bad?

inflation doesn't make the nation poorer. -but while inflation doesn't make the nation poorer it does cause income to be redistributed, and it can reduce the amount of information that prices are supposed to convey. -despite these costs, inflation is usually accept by governments as long as it stays low, which for the US currently means under 2 1/2 to 3 percent. -what scares economists are inflationary pressures above and beyond expectations of inflation. In that case expectations of higher inflation can cause inflation to build up and compound itself. -whenever prices go up somebody (the person paying the higher price) is worse off, but the person to whom the higher price is paid is better off.

unemployment rate

is the percentage of people in the economy who are willing and able to work but who are not working.

Business Cycle

is the upward or downward movement of economic activities, or real GDP, that occurs around the growth trend.

How are unemployment statistics gathered? Who is undercounted and who is over counted? (forum)

nly those in the Labor Force are counted towards the unemployment rate. If you are not considered to be part of the labor force you do not count towards to unemployment rate.The Labor forces includes the number of people above the age of sixteen who have jobs or are looking for jobs. As I just learned, the unemployment rate is figured out by surveying 60,000 households per month. This doesn't exactly seem like the best way to figure out how many people are actually unemployed, considering how often the unemployment rate is discussed on the news and in politics.

Per Capita real output

real GDP divided by the total population. -output per person is an important measure of growth because, even if total output is increasing, the population may be growing even faster, so per capita real output would be falling. -economic growth (per capita) allows everyone in society, on average to have more.

Real income

real income- is income in constant dollars- nominal income adjusted for inflation.

define- recession- depression- expansion-

recession-is generally considered to be a decline in real output that persists for more than two consecutive quarters of a year. depression-is a large recession. there is no formal line indicating when a recession becomes a depression. in general a depression is a much longer and more sever than a recession. (economists often joke- when your neighbor is unemployed, it's a recession, when you're unemployed, it's a depression) expansion- an upturn that lasts at least 2 consecutive quarters of a year.

law of demand

states that the quantity of a good demanded is inversely related to the good's price. -In other words, other things equal, Quantity demanded rises as price falls Quantity demanded falls as price rises -As prices change, people change how much they're willing to buy -The law of demand is based on the fact that when prices for a good rise, people substitute away from that good to other goods

fallacy of composition

the false assumption that what is true for a part will also be true for the whole.

Define labor force and who is counted and not counted in this country? (forum)

the labor force in our country is made up of people who are willing and able to work. People counted in this are those that are physically able to work and also those who are above 16 years of age. You would take all civilians over 16 and then subtract The people who are among those who are not counted in the work force are the retired, mentally or physically ill, children under 16 years of age, homemakers, and students.

The Phillips Curve (from forum)

the short-run Phillips curve is a downward-sloping curve showing the relationship between inflation and unemployment when expectations of inflation are constant. Unemployment is measured on the horizontal axis and inflation is on the vertical axis. When unemployment is low inflation tends to be high, if inflation is low unemployment is high. All points on the short-run Phillips curve, expectations of inflation are fixed, whereas all points on the long run Phillips curve, expectations and actual inflation are the same. Expectations of inflation don't change along the short-run Phillips curve. The long-run Phillips curve is vertical, showing the lack of trade-off between inflation and unemployment when expectations of inflation are the same as actual inflation. -Additionally, according Milton Friedman, there is a short-term connection between inflation changes and employment. When surprise inflation occurs, workers are fooled into accepting lower pay because they do not see the fall in real wages right away. Companies hire them because they see the inflation as an opportunity for higher profits by paying these lower wages. Eventually, workers catch on that the real wages have fallen, so they push for higher money wages causing the Phillips curve to shift upwards. -The Phillips curve broke down in the 1970's, because there were a combination of high unemployment and inflation (stagflation)

real output- nominal output- how do you get the real interest rate?

the total amount of goods and services produced, adjusted for price-level changes. it is the measure of output that would exist if the price level had remained constant nominal output- is the total amount of goods and services produced measured at current prices. for example, say total output rises from $8 trillion to $10 million. nominal output has risen by 8trillion - 8 trillion/8 million = 2 trillion/8 trillion X 100= 25% -% change in real output = % change in nominal output - inflation. -The "real" amount is the nominal amount divided by the price index. It is the nominal amount adjusted for inflation. -real interest rate = nominal interest rate - inflation rate

Your favorite beers are Amstel and Samuel Adams. The price of Amstel went way up due to an unfavorable exchange rate with the dollar against the Euro. First what type of goods are they? Then, what will happen to the demand for Samuel Adams and why?

there was some question if beer was considered a luxury or normal good. But most would go with a normal good, but it could also be a luxury good, since there are so many different types of beer available and a wide spectrum of price. I also found that if someone was a beer drinker, and something happened where their income was less, it would not stop them from purchasing beer, it would just have them purchase a substitute brand that is cheaper. So that is what I think would be the case in this situation. If the price of Amstel went up, the demand would then increase for Samuel Adams, as that would be a substitute good with a lower price for consumers.

building blocks of traditional and behavioral models.

traditional economics - -people are completely rational -people are self-interested behavioral economics- -people behave purposefully -people follow their enlightened self-interest -Purposeful behavior is behavior reflecting reasoned but not necessarily rational judgement. -withe enlightened self-interest people care about other people as well as themselves

despite problems, the unemployment rate statistic still gives us what?

useful information about changes in the economy.