Econ Test 2 - Inflation and Unemployment

unemployment

People who are not working but are actively seeking a job

*reduces uncertainty over incomes *gives unemployed more time to research

What are some benefits to unemployed insurance?

discouraged workers disabled young kids retired people stay at home parents military

What are some groups of people not included in the labor force?

1. CPI does not account for product substitution 2. CPI does not account for improvements in quality 3. CPI does not account for new products

What are some problems with CPI? (3)

Non-market goods and services - anything done at home Sale of used goods - like a used car or something off of Ebay Financial transactions - trading of stock and bonds Government transfer payments - unemployed insurance, social security payments etc Environmental quality - factories pollution, hurricane damage Informal market - working for cash (like babysitting) The underground economy - prostitutes and weed

What are some things not included in GDP? (There's a lot so just be aware)

peak, recession, trough, recovery, peak, cont.

What are the stages in a typical business cycle?

Household survey Payroll survey

What are the two monthly employment surveys?

By adding up the Income produced or spending

What are the two ways the economy can be measured?

Contraction and Expansion

What are to two parts of a business cycle?

Zimbabwe and Venesuela

What are two countries that experienced/are experiencing really high inflation?

1. Demand factors (demand rises or falls) 2. Supply shocks (supply increases) 3. Government policy (the ability to borrow and print money - causes hyperinflation)

What causes inflation? (3 things)

GDP per person (average)

What does GDP per capita show us?

The National Income and Product Accounts

What does NIPA stand for?

C= Personal consumption expenditures *This includes everything that consumers buy *The biggest part of GDP - around 70% *Doesn't change much from year to year

What does the C stand for in the GDP equation?

G= Government Purchases *Includes anything the government purchases (duh)

What does the G stand for in the GDP equation?

I= Gross private domestic investment *Includes everything that businesses buy to help run their business *Very volatile (changes a lot from year to year) *When economy increases, investment increases

What does the I stand for in the GDP equation?

NX= Net exports *Found by taking our exports and subtract our imports (NX= x-m)

What does the NX stand for in the GDP equation?

It takes into account the size of the population when measuring the value of goods and services a country produces

What is a benefit to using GPD per capita instead of just GDP?

It doesn't accurately reflect the differences in wealth between rich citizens and poor citizens in a country.

What is a disadvantage of using GDP per capita?

*increases frictional unemployment

What is a drawback of unemployed insurance?

$ amount from previous year x (current CPI/CPI from previous year)

What is the equation for converting a $ amount from a previous time period?

Real income = (nominal income/CPI) x 100

What is the equation for converting nominal to real income?

(# of unemployed/civilian labor force) x 100

What is the equation for the unemployment rate calculation?

GDP=C+I+G+NX

What is the equation to measure GDP?

GDP

What is the most common measure of an economy's size?

2%

What percent of inflation is the federal goal?

up

When RGDP goes down, unemployment goes _______

real

When calculating economic growth it is important to use _________ GDP

trade deficit (when this happens NX will be a negative number because m>x)

When the US imports more than we export

production

When we talk about economic growth, we are talking about how much our __________ has increased

Real GDP

Which GDP picks a base year and always uses prices from that year?

inflation

A general rise in prices of goods and services

Deflation - opposite of inflation

A decline in the price level, prices on average fall

Disinflation Ex: 2016 - inflation rate of 3% 2017 - inflation rate of 2% 2016 - inflation rate of 1%

A reduction in the rate of inflation, prices rise at a decreasing rate. (PL goes up while % of inflation goes down)

gross private domestic investment

Accounts for 15% of GDP

personal consumption expenditures

Accounts for 70% of GDP

Hyperinflation

An extremely high rate of inflation

recession

Begins after two consecutive quarters of negative growth

production

GDP measures ______________

double counting

GDP measures the final value of goods and services produced to avoid the problem of _____________

higher

Higher GDP = higher or lower standard of living?

(new-old/old) x 100 *This is what we use to calculate inflation rate and economic growth *New and Old refer to CPI

How do we calculate % change?

price x quantity

How do we find the total value of something?

Labor Force

Includes everyone working or willing to work (employed and unemployed)

NOOOO

Is GDP a perfect statistic?

CPI - Consumer Price Index

Measures the average change in prices paid by urban consumers and wage earners for a market basket of consumer goods and services.

Unemployment Insurance

Money given to you when you have been fired and are actively seeking a new job

frictional and structural

Natural rate of unemployment is found by adding __________ unemployment and ________________ unemployment

U-6 rate

Rate that includes discouraged workers and other groups not included in labor force

Discouraged Worker (not included in unemployment rate and labor force)

Someone who becomes discouraged and stops looking for work

Price Level

The average of current prices across the entire spectrum of goods and services produced in an economy

GNP (gross national product)

The market value of all goods and services produced domestically and abroad using resources supplied by US citizens

Full employment

The perfect number, the lowest amount of unemployment without causing inflation

the business cycle

The periodic fluctuation of economic activity

Structural *Will always exist at some level *Sign of a dynamic economy - there are always things changing

This type of person has no transferrable skills and works in a dying industry

Frictional *We will always have some level of frictional unemployment

This type of unemployed person has transferrable skills and moves around to try to find the best fit for them. It is the most efficient and productive type.

Cyclical *recessions *when RGDP goes down and unemployment goes up *worst type of unemployment

This type of unemployment is caused by fluctuations in the business cycle

GDP

Total market value of all final goods and services produced by resources in the US in a given year

Inflation increases

__________ is measured against a market basket. Some prices rise and some fall but overall the price level ___________.

investment

___________ is a key determinant of economic growth

creditors are hurt debtors benefit

____________ are hurt by inflations, and _____________ benefit