Macroeconomics Exam 2- Ch. 20, 21, 22
What causes business cycles
-A shock to key input to production -Housing bubble followed by a financial markets meltdown
why wage paid higher than market wage
-Efficiency wage -Labor unions
Minimum wage thing (2 things to remember)
-If minimum wage is above market wage then unemployment exists -If minimum wage is blow market wage then no unemployment
Not in the labor force
-Not available for work (Homemakers, retirees, full time students), in military - Available for work but not currently working (Discouraged workers, not currently looking due to childcare responsibilities or transportation)
Business cycle facts
-during Bc Unemployment will increase during the recession and continue to increase into the expansion - during Bc Durable goods are much more affected than non-durable goods -during recession portion of Bc the inflation rate will decline
How many Employed
148.2 million
Labor Force: Employed
16 years of age and older on job or temporarily away from job Ill, vacation, on strike Part-time students work full time
Unemployment rate numbers
5.7 now, 5.6% Dec 2014, and 10% Oct 2009 is the highest
unemployment- looked in past four weeks
8.98 million
How many not in labor force
92.54 million
Hyperinflation
> 100% of inflation rate (1980s Bolivia, 2000-2009 Zimbabwe) Massive and rapid increase in the amount of printed money. If you are a borrower, you will love inflation; if you lend money, you hate inflation
Outlet bias
BLS collect price statistics from full-price retail stores, not from outlet and internet discounted values
New product bias
BLS update the market basket of goods every 10 years. some new products use in the middle of these 10 years may not reflect in CPI calculation immediately
Lower income countries should grow faster than higher income countries; but not all of those countries because of
Corruption political instability poor public education and health low savings and investment
Marginally attached workers
Have looked for work sometime in the past year but not in the past 4 weeks(2.234m) (discouraged workers(682000) is a subset of this)
If more people entered into the labor force and started looking for jobs, what happens to the unemployment rate
Higher
PFF curve
Horizontal: capital per hour worked; vertical: output per hour worked
Unemployment rate deffinition
Percentage of the labor force that is currently unemployed.
Nominal interest rate =
Real interest rate +inflation rate Also = stated interest rate on the loan
Business cycle
alternating periods of economic expansion and recession
Why employment Exists
Unemployment insurance
Efficiency wage
Wage paid above market wage which improves attendance productivity, reduce shirking and increase profitability
Substitution Bias
When calculate CPI, BLS assumes that each month consumers buy the same amount of each product. But, if price of apple increases, you will not buy the same amount of apples as before and may switch to buy apple juice
Human capital
accumulated knowledge and skills workers acquire for edu and training of from life experiences
CPI may overstate the true inflation rate(4 reasons)
Substitution Bias Increase in quality New product Bias Outlet Bias
deflation
decrease in price level
what determines economic growth
human capital, physical capital and technology
Increase in quality bias
increase in the price of goods often mean increase in quality. this does not show up in CPI calculation
inflation
is the increase in the price level
Long run economic growth
is the process by which rising productivity increases the average standard of living -In other words, long run growth is that increase in real GDP per capita depend on increases in labor productivity and natural resources
why England
it had tools, capital, and equipment people had property rights Court systems independent ability and incentive to produce more
Unemployed
looked for job in the past 4 weeks but haven't found one
Physical capital
refers to manufactured goods that are used to produce other goods and services
increase in technology
shift up the PPF curve (increase production vertically) if keep the capital the same; vice versa
Labor productivity
the quantity of goods and services that can be produced by one worker or by one hour of work
difference u3 and u6
u3 is just the normal measure, it is not as broad as u6
increase in capital
will stretch out the PFF curve horizontally
U6 caculation
(unemployed+marginally attached+ part time for economic reason)/(labor force+marginally attached)
GDP deflator equation
Nominal/Real. If nominal wages stay the same during inflation period, then your real wage will decrease dramatically
Growth rates calculation
(real GDP of later year- real GDP of the earlier year)/(real GDP of earlier year)*100
u3 calculation
#unemployed/#unemployed+#employed
GDP per Capital in history
$140 until industrial revolution in England 1750
Employment-population ratio
(#employed/#labor force+#not in labor force)*100
Labor Force participation rate
(#labor force /#labor force+#not in labor force)*100
Unemployment rate equation
((#of unemployed)/(#unemployed+#employed))*100
Working part time for economic reasons
(6.810m) Counted as Employed
CPI calculation
(Expenditure in current year/ expenditure in base year)*100 CPI of base year always equals 100
Quantity of capital per hour worked
Increases in this will cause increases in labor productivity
Institutions in economic growth
Institutions are rules and arrangements that direct our behavior. can be formal and informal
if people who did not have a job recently found a new job, what happened to the unemployment rate?
Lower, no change in denominator
CPI Deff
Measures how prices change over time measured by Bureau of labor statistics using market basket(housing 41%, transportation 17%, Food and drink 15%)
Diminishing Marginal Productivity
Need labor and capital into production - Adding more of 1 input (labor) to a fixed amount of another input(capital) will increase your output but buy smaller and smaller increments
